Gene

Control (management)

Sustainability reporting

Ecology

Biology

Sustainability

Public relations

Robustness (evolution)

Accounting

Economics

Biochemistry

Computer science

Business

Corporate governance

Environmental planning

Directive

Process management

Management

Political science

Audit

Environmental resource management

Valuation (finance)

Corporate social responsibility

Environmental science

Chemistry

Programming language

Finance

Internal control

Corporate Social Responsibility and Environmental Management

In the article, we provide an original linkage between the corporate environmental, social, and governance (ESG) rating and the cost of internal control system (ICSC) stemmed from two closely related frameworks: the 2017 CoSO Framework, which calls to strengthen internal control systems to integrate ESG issues, and the EU directive on nonfinancial reporting (2014/95/EU) that entered into force in 2017. Thus, we evaluate both introductions showing ESG integration in the internal control activities. We cover firms listed on Milan Exchange from 2016 to 2019, providing a thorough analysis with robustness tests. The findings imply that firms should consider both ESG rating and the internal control system cost as strategic corporate tools for value enhancement; therefore, companies should allocate the resources appropriately to internal control activities to incorporate ESG issues and create value since internal control provides the first assurance for ESG integration. The limitations of this study pave the way for further research directions; incorporating the new amendment of the EU directive on nonfinancial disclosure, allowing for a better valuation creation assessment; and whether there is a substitution between sustainability performance and other corporate issues such as taxes and marketing expenditure.

A need for assurance: Do internal control systems integrate environmental, social, and governance factors?