Corporate governance best practices have played a critical role in enhancing the sustainability, both financial and ESG-related, of non-bank financial institutions (NBFIs) in Sri Lanka. Empirical research and regulatory developments highlight how effective governance translates into stronger performance, lower insolvency risks, and better sustainability disclosures.

📉 1. Reducing financial distress and insolvency risk

a. Enhanced board composition and oversight

A study of 54 listed Sri Lankan financial institutions (2017–2022) found that larger boards, greater gender diversity, more frequent board meetings, higher audit quality, and better-educated and independent directors all correlate negatively with financial distress ([IMF eLibrary][1], [International Journal of Accountancy][2]).

Likewise, among 25 licensed finance companies (2019–2023), a separate study showed board gender diversity, frequent board meetings, and active audit committees significantly lower the probability of insolvency (measured by Altman’s EMZ score) ([South Asian Journal of Business Insights][3]). These governance mechanisms promote healthier risk management and long-term viability.

📊 2. Boosting sustainability disclosures

A 2020 study of 50 large Sri Lankan listed companies (2015–2018) examined board size, CEO duality, board meetings, committees, and shareholder concentration against sustainability metrics (GRI G4 framework).

It concluded that:

Board size, CEO duality, and shareholder concentration positively influenced overall sustainability;

In contrast, more frequent board meetings and committee structures were negatively or insignificantly correlated with environmental and social metrics ([ResearchGate][4]).

The main takeaway: when governance structures align with stakeholder theory, they encourage better sustainability performance, though overly rigid board procedures may hamper agile ESG strategies.

🔎 3. Stronger governance ⇒ Better integrated reporting

Research analysing 132 integrated reports (three‑year span) found that only board size and the existence of a dedicated risk management committee consistently correlated with higher quality integrated reporting ([MDPI][5]). This suggests that board structures directly empower firms to provide more holistic disclosures, aiding transparency and stakeholder trust.

🏛️ 4. Regulatory frameworks and ESG integration

Sri Lanka’s Central Bank, under its Sustainable Finance Roadmap (since 2019), issued guidelines requiring both banks and NBFIs to:

- Establish dedicated ESG governance bodies,

- Begin mandatory sustainable finance reporting,

- Adopt green finance taxonomies (2022) ([csf-asia.org][6], [CBSL][7]).

The IMF also highlighted that prior institutional failures often stemmed from weak board oversight, leading to imprudent risk-taking. They recommend aligning NBFI governance with Basel Corporate Governance Principles, strengthening director qualifications, risk culture, and three lines of defence models ([IMF eLibrary][1]).

✍️ Summary:

| Governance Practice | Sustainability Impact |

| ------------------------------------------------ | ------------------------------------------ |

| Larger, more independent, gender-diverse boards | Lower financial distress & insolvency risk |

| Active audit committees & regular board meetings | Stronger risk oversight |

| Presence of risk-management committees | Higher-quality integrated reporting |

| Central bank’s ESG guidelines | Institutionalized sustainability practices |

✅ Conclusion

For Sri Lankan NBFIs, implementing board diversity, structured oversight, audit rigour, and ESG governance structures has directly supported both financial sustainability and ESG transparency. Supported by central bank mandates and global governance principles, these best practices are foundational for resilience, accountability, and sustainable growth.

References:

1. Perera & Munasinghe (2023): board factors reduce financial distress in 54 NBFIs ([International Journal of Accountancy][2], [ResearchGate][8], [combank2024.annualreports.lk][9], [MDPI][5], [CBSL][7], [Reuters][10])

2. Hettiarachchi & Sameera (2025): board diversity and audit committees lower insolvency risk in 25 finance companies ([South Asian Journal of Business Insights][3])

3. Lakmali, Dissanayake & Mendis (2020): governance factors and sustainability disclosures in 50 large firms ([ResearchGate][4])

4. Cooray, Gunarathne & Senaratne (2020): board and risk committees improve integrated reporting ([MDPI][5])

5. Central Bank’s Sustainable Finance Roadmap & ESG mandates ([CBSL][7])

6. IMF governance diagnostic: need for Basel-aligned governance in NBFIs ([IMF eLibrary][1])

Thank you so much for the insights drawn from recent citations.

Would appreciate if an interview guide could be suggested as to the key factors in relation to the same.

Strong corporate governance enhances sustainability in non-bank financial institutions by improving transparency, accountability, and stakeholder trust, which support long-term value creation.