Readability of German Sustainability Reports: The Role of ESG Performance and Audit Committee Characteristics

This paper examines whether firms' environmental, social and governance (ESG) performance and audit committee (AC) characteristics—size, number of meetings, attendance rate at meetings, and gender diversity—are associated with the readability of sustainability reports. We measure readability by the German adaptation of the Flesch Reading Ease Score. Drawing on a sample of 524 firm‐year observations of German CDAX firms from 2017 to 2022 obliged to prepare a sustainability report (i.e., large PIEs with more than 500 employees), we estimate multivariate OLS regression models and conduct split‐sample analyses based on whether firms obtain voluntary external assurance. We find that higher ESG performance is associated with greater readability, driven by the social pillar. On average, larger ACs are associated with lower readability, whereas more AC meetings are positively associated with readability. The assurance context matters: among firms that engage an external assurance provider, larger ACs are linked to lower readability, while greater AC gender diversity is positively associated with readability. Among firms without external assurance, where reports are subject to supervisory board review, AC size remains negatively associated, and gender diversity remains positively associated with readability. In contrast, the number of meetings and attendance are each positively associated with readability in this context.