The Effect of ESG Committees on Audit Efforts

[Purpose]As companies respond to changing regulations, investment, and industrial environments related to climate change, ESG (Environmental, Social, and Governance) management has become more widespread. This shift in management practices is reflected in the establishment of ESG committees within companies. [Methodology]This study investigates the impact of ESG committees on auditors’ audit efforts. OLS regression analyses were conducted on 8,627 KOSPI and KOSDAQ listed companies over a five－year period from 2016 to 2020. [Findings]First, the establishment of ESG committees led to an increase in auditors’ audit hours. Second, this effect was more pronounced in ESG committees that adopted active and explicit names reflecting proactive ESG management. Third, from a governance perspective, this relationship was stronger in companies with higher foreign ownership. Lastly, the relationship was more evident in companies audited by big 4. [Implications]This study provides additional contributions to the literature, given the growing significance of ESG committees as a standard form of governance and the limited research on the effectiveness of ESG committees.