Banking on Transparent Accountability: Financial Sector Governance and the Adoption of Supranational Sustainability Reporting Standards

ABSTRACT Corporate sustainability reporting is widely promoted to enhance transparency and track global sustainability goals, yet its adoption remains highly uneven across nations. Prior research focuses on firm‐level drivers or aggregated institutional quality, overlooking the distinct role of financial regulators. Drawing on neo‐institutional theory and institutional substitution, this study examines how national financial sector governance influences the adoption of sustainability reporting standards. Using a balanced panel of 139 countries (2011–2023), we employ fixed‐effects, dynamic panel and instrumental variable regressions, complemented by income and regional heterogeneity analyses. The results reveal a statistically significant positive relationship between financial sector governance and sustainability reporting adoption. The effect is strongest in low‐income economies and sub‐Saharan Africa, where financial regulators compensate for weak environmental oversight. In high‐income contexts and Latin America, broad regulatory quality supplants specialised financial governance as the primary transparency driver. IFRS adoption and state ownership show limited direct influence. These findings position financial sector governance as a practical institutional substitute for underdeveloped regulatory systems. Policymakers can leverage existing financial oversight to accelerate sustainability reporting, particularly in resource‐constrained settings. The study advances institutional theory by differentiating financial regulatory capacity from general state capacity and offers a scalable pathway toward global transparency objectives.