Integrating Sustainability in Risk Management and Internal Control Systems: An Empirical Assessment of ESG Reporting of German DAX40 Firms

Integrating sustainability into enterprise risk management (ERM) and internal control system (ICS) and the corresponding reporting is gaining importance for organizations due to increasing pressure from regulators and stakeholders. The objective of this paper is to analyze corporate disclosures on the integration of sustainability into the ERM and the ICS. Based on stakeholder agency theory, this study applies a self-developed disclosure index on the ESG reports of 29 German DAX40 companies for 2022 and 2023. The index evaluates from an organizational, regulatory, and, with a focus on environmental issues, business practice perspective. Overall, companies report with restrained quality. The study found varying results across the index sections and a minor positive trend from 2022 to 2023. A sub analysis to identify potential differences in reporting behavior according to the affiliation to environmentally sensitive sectors revealed mixed findings. This paper holds different methodological limitations. However, it contributes to scarce qualitative research and provides deep insights into corporate sustainability reporting of German DAX40 companies. The results are of practical importance for businesses and regulatory bodies, as they reveal weaknesses in corporate reporting. Keywords: disclosure index; ESG reporting; internal control system; risk management; sustainable corporate governance