Firms’ Commitment to Sustainability: To What Extent is the Presence of Women on Boards Important?

Abstract

Many firms are committed to Sustainable Development Goals, such as climate change, but their performance differs. Boards’ attention to sustainability might influence strategic decision making and consequently firms’ practices and ESG performance. Inspired by upper echelons theory, this study aims to examine the extent to which female board representation is important for ESG performance, considering board-management interactions. Building on past research, this study argues that women can enhance board monitoring and board strategy involvement, which can influence ESG performance. A configurational analysis is used, including different corporate governance mechanisms: board independence, female board representation, board orientation, CEO power and ESG-related executive compensation. The findings suggest that the presence of women on boards is important to firms’ ESG performance; however, it is not mandatory. A well-defined CSR strategy combined with ESG-linked executive compensation can make the presence of women on boards indifferent, if firms have high levels of board independence, CEO non-duality and a CSR Sustainability Committee. The results also show that a high ESG scores can be achieved with a combination of board-management mechanisms, which does not include executive alignment incentives, thereby contributing to the debate on whether monitoring and executive alignment incentives act as substitutes or complements. In addition, the results reinforce the notion that CSR Sustainability Committees are important, but should be combined with other conditions to be effective.