Board-level drivers of climate disclosure readiness among firms listed on the Nairobi Securities Exchange: the moderating role of climate governance

Abstract

The climate disclosure landscape is changing with climate related disclosure now evolving from voluntary to mandatory across various jurisdictions. In Kenya, transition is underway with mandatory adoption of the International Sustainability Standards Board (ISSB) Sustainability Disclosure Standards, IFRS S1 and IFRS S2 scheduled for January 2027 for Public Interest Entities (PIEs) which include publicly traded companies. This study evaluated the readiness of firms listed on the Nairobi Securities Exchange (NSE) to comply with the impending climate disclosure, IFRS S2, and sought to understand the board-level drivers that shape readiness. Specifically, the study explored the influence of board factors, board size, independence, and gender diversity, on firm readiness and examined the moderating role of climate governance in this relationship. Past studies have discovered mixed findings on the determinants of climate disclosure readiness, highlighting the need for further investigation. This study extends existing literature by including climate governance as a moderator, offering more nuanced understanding of the relationship between board attributes and climate disclosure. The study was grounded in Resource Dependence, Upper Echelons, Agency, and Legitimacy Theories. The study adopted a positivist research philosophy, undertaking content analysis of annual reports and sustainability reports for the period 2021 to 2024 of 55 firms listed on the NSE. The study conducted quantitative statistical analysis, including descriptive analysis and Ordinary Least Squares (OLS) regression to examine correlation between dependent and independent variables. The study further conducted inferential robustness across pooled OLS, random effects mixed modelling, and within-firm fixed effects with Hausman specification selecting fixed effects as the preferred specification. The study found that climate governance is a key driver of climate disclosure readiness. The moderating effect of climate governance on board size and independence were determined to be insignificant. The interaction with board gender diversity on the other had showed significant but negative effect implying that the influence of female directors on board was more pronounced when formal climate governance mechanisms were weak. The findings of this research demonstrate that firms need to invest in formal climate governance mechanisms to strengthen compliance readiness.

Key words: Board-level drivers, Climate disclosure, Climate governance, Content analysis, Disclosure readiness, ISSB IFRS, OLS regression, Random effects, Fixed effects