From ESG to risk-taking and financial stability: is board gender diversity the missing link in Islamic and conventional GCC banks?

Purpose This paper aims to explore how ownership structure impacts environmental, social and governance (ESG) performance in banks, with a particular focus on Islamic banks. It also assesses whether bank risk and board characteristics influence the relationship between ownership structure and ESG performance. Design/methodology/approach This study analyzes a sample of 48 commercial banks from the Gulf Cooperation Council (GCC) countries over the period from 2013 to 2022. The primary empirical methodologies used are structural equation modeling and the generalized least squares technique. To ensure the robustness of the findings, alternative methodologies, including the two-stage least squares technique and the two-step system generalized method of moments approach, as well as various measures for ESG, bank risk and ownership structure, are also used. Findings The empirical findings reveal a negative relationship between ownership concentration and ESG performance, while institutional and foreign ownership positively contributes to ESG performance. This relationship is mediated by the bank’s risk attitude and moderated by board characteristics. Additionally, a significant difference is observed between conventional and Islamic banks, as well as based on bank size and the level of ESG performance. Practical implications Regulators should enforce ownership diversity rules (e.g. shareholding caps, tax incentives) and mandate Sharia-aligned ESG disclosures and governance audits; bank managers must embed ESG risk assessments, internal sustainability audits, strengthened board independence and diversity, plus targeted sustainable finance training; and investors need to integrate standardized ESG ratings (MSCI, Sustainalytics) into their analyses and engage proactively with both conventional and Islamic banks to drive faith-compliant sustainability initiatives. Social implications Enhanced ESG performance across GCC banks will mobilize capital toward environmentally and socially responsible projects, support SMEs and reinforce regional economic stability. By elevating transparency and governance, especially within Islamic banking frameworks, the region’s financial institutions will attract responsible international investment, bolster their global reputation and contribute to more inclusive, resilient growth and broader social welfare. Originality/value Given the limited research on this topic, this paper initiates a discussion on the impact of ownership structure on ESG performance in GCC countries. Using a substantial sample of both conventional and Islamic banks, the study emphasizes the significance of bank risk and board characteristics, which should be considered when implementing ESG investments and practices.

Purpose This study examines the impact of board gender diversity (BGD) on financial performance (FP) and environmental, social and governance (ESG) disclosures, as well as the impact of ESG disclosures on FP. Furthermore, this study investigates the moderating role of ESG disclosures in the relationship between BGD and FP. Design/methodology/approach The sample included data on 60 nonfinancial companies listed on the Abu Dhabi Securities Exchange and the Dubai Financial Market from 2012 to 2021. Data were collected from a Bloomberg Terminal. Dynamic panel data regression was used to study the impact of BGD and ESG on FP. Findings During the voluntary ESG reporting period, the impacts of ENV and GOV on FP were significant, whereas that of ESG was not. BGD improves the FP of listed nonfinancial companies when mandatory ESG disclosure is required. However, this relationship was negatively moderated by ESG during adherence to these requirements. Research limitations/implications It is recommended that nonfinancial companies listed in the United Arab Emirates (UAE) practice a more favorable mechanism to enhance BGD when their ESG scores become weaker. Improving BGD practices for nonfinance companies with strong or increasing ESG scores will not be effective as it may reduce the strength of the existing association between BGD and FP. Practical implications It is recommended that nonfinancial companies listed in the UAE practice a more favorable mechanism to enhance BGD when their ESG scores become weaker. Consequently, such companies can improve FP in terms of an increased market value of shares (Tobin’s Q) when their ESG scores decrease. However, improving BGD practices for nonfinance companies with strong or increasing ESG scores will not be effective because it may reduce the strength of the existing association between BGD and FP. Originality/value To the best of the authors’ knowledge, this is the first study to find a negative moderating role of ESG in the relationship between BGD and FP, particularly during mandatory ESG reporting requirements.

PurposeThe purpose of this study is to critically evaluate how conventional and Islamic banks trade off risk, efficiency and financial performance in their business models, to investigate how patterns of risk and efficiency vary between conventional and Islamic banks and to critically evaluate how the profitability of conventional and Islamic banks varies following the financial crisis.Design/methodology/approachThis study uses univariate and multivariate statistical techniques by investigating 12 Islamic banks and 34 conventional banks operating in the Gulf Cooperation Council (GCC) region has been studied over the period 2011–2018.FindingsThe results suggest that Islamic and conventional banks differ not in the levels of efficiency, risk and profitability, but rather in how risk and efficiency influence banks’ financial performance. Islamic banks are found to be less influenced by the adverse effects of credit risk, which is consistent with the risk-sharing nature of Islamic financing. However, the results only hold for return on assets (ROA) and return on equity (ROE) while the net interest margin is observed to be negatively influenced by credit risk. Lower cost-income efficiency is also found to boost ROA and ROE of Islamic banks which could be attributed to a larger share of non-interest revenues due to Sharīʿah-compliance.Research limitations/implicationsFrom a theoretical point of view, this study helps to understand the risk, efficiency and financial performance of Islamic banks in comparison with conventional banks.Practical implicationsThe results of this study can serve bank managers, regulators and shareholders. Policymakers should encourage a more risk-sharing structure of Islamic financing as it brings less adverse effects of credit risk and increases income sustainability for Islamic banks. The present study may help bank managers to improve the financial performance of their firms by controlling risk and efficiency. The study results also have implications for shareholders and depositors of Islamic and conventional banks as they should have a predetermined position about the level of credit risk and efficiency in each banking system.Originality/valueThe foremost contribution is that this is one of the few studies to compare risk, efficiency and financial performance of Islamic and conventional banks in the GCC region. By using the latest data, this paper hopes that the findings will be more relevant than previous studies to the current situation of the banking industry in the region.

PurposeThe purpose of this paper is to examine the relation “diversification-risk-performance” for Islamic and conventional banks in different financial stress levels. Also, it aims to investigate the impact of the structure of board directors, macroeconomic variables and banking specific factors on banking diversification.Design/methodology/approachThe authors use generalized least squares regressions to examine the impact of banking specific, macroeconomic and governance variables on investment diversification of 66 Islamic and conventional banks during the period from 2006 to 2018. In addition, this study uses panel threshold regressions to study the impact of banks’ profitability and risks on investment diversification in different financial stress levels.FindingsThe findings show liquidity risk, performance, credit risk and capitalization ratio are significantly related to investment diversification of Islamic banks. On the other hand, liquidity and credit risks, capital to total assets ratio and size have a significant influence on investment diversification of conventional banks. In addition, the diversification strategy of Islamic banks is less sensitive to macroeconomic indicators. As regards to governance variables, the results suggest that the board size, the executive directors and the foreign directors have significant impact on the investment diversification in Islamic banks. On the other hand, chief executive officer duality and foreign directors affect significantly the investment diversification of conventional banks. This study also found that financial stress enables us to develop a better understanding of the relation “performance-risks and diversification.”Practical implicationsIt is expected that the findings of this paper can be used by Islamic and conventional banks in Gulf Cooperation Council (GCC) region that seek to manage the diversification strategy by reducing risk-taking and maximizing profitability. This study suggests that bank managers should consider the level of financial stress during the development of diversification strategy. It provides a better understanding for bank managers about the effect of bank specific and macroeconomics factors as well as governance variables on diversification.Originality/valueThis study focuses on providing an extension of the existing literature by studying the impact of financial stress indices on the relation between banks’ risk-performance and investment diversification for Islamic and conventional banks in the GCC region.

PurposeThis study aims to investigate the differences in the credit profiles of Islamic and conventional banks in the Gulf Cooperation Council (GCC) region and attempts to identify the factors responsible for those differences.Design/methodology/approachFinancial data sourced from the Bankscope database for a sample of 25 Islamic and 56 conventional banks headquartered in the GCC region between 1987 and 2014 are used. The credit risk of Islamic versus conventional banks is compared using a variety of univariate (mean difference test and correlation analysis) and multivariate tests (pooled ordinary least squares (OLS) regressions with robust standard errors and year fixed effects, regressions with interaction variables and logistic regressions).FindingsPooled OLS regressions find that Islamic banks have lower credit risk than conventional banks. Robustness checks using logistic functions and interaction variables confirm this result. Using multiple econometric specifications, we also find that higher capitalization, greater liquidity and cost inefficiency contribute to the lower risk profile of Islamic banks.Research limitations/implicationsThe study is unable to disaggregate data for banks offering both Islamic and conventional banking services and hence does not include conventional banks with Islamic windows. In addition, there are differences across countries even within the GCC region as to what is considered Sharia’h-compliant and what is not.Practical implicationsThe results are of potential interest to not only researchers, but also market participants, regulators and legislators. The methods used in this study could be extended to other two-tiered banking systems and, in the case of Islamic and conventional banking, to other markets.Originality/valueThe authors use a unique sample of banks headquartered in the GCC countries, whose banking markets are similar, if not homogeneous, thus excluding operations of multinational banks. By focusing on the Gulf region, differences in the credit profiles of Islamic and conventional banks can be examined without the confounding effects of unobserved factors like culture, accounting regime or regulatory environment.

Purpose This study aims to investigate the impact of gender diversity in top management teams and boards on environmental, social and governance (ESG) performance. The authors propose a corporate social responsibility (CSR) committee as a moderating variable in this relationship, drawing on resource dependence and legitimacy theories. This study is crucial in understanding the dynamics of gender diversity and its impact on ESG performance in the banking sector. Design/methodology/approach The study examines a sample of Islamic and conventional banks from 10 Middle Eastern and North African countries during 2008–2022. Initial analysis was conducted using fixed effects panel regression, whereas the robustness test used the generalized method of movement dynamic system. Findings The findings, which are significant for both conventional and Islamic banks, indicate that female directors are crucial in promoting ESG performance in conventional banks. In contrast, female executives do not appear to contribute significantly. However, for Islamic banks, neither board nor executive gender diversity significantly affects ESG performance. Moreover, the find that the positive moderating role of the CSR committee is significant only for the nexus between board gender diversity and conventional banks’ ESG performance and for the connection between executive gender diversity and Islamic banks’ ESG performance. Originality/value Despite the widespread belief that gender diversity in top management teams is pivotal in promoting ESG performance, empirical studies supporting these claims are scarce, particularly in the banking sector. The study, therefore, brings a novel perspective to this discourse. These findings have the potential to significantly assist stakeholders in evaluating how gender diversity in top management teams influences banks’ sustainability practices, thereby empowering them to make more informed and impactful investment decisions.

Purpose Gender diversity in corporate boards is broadly studied in existing corporate governance literature. However, the role of board gender diversity on environmental, social and governance (ESG) performance of the banks is still unaccounted for. Drawing on resource dependence and legitimacy theory, this study addresses this pressing research issue. Moreover, investigation of ESG controversies as a moderator paves the existing corporate governance research to the new avenues. Design/methodology/approach Data were sourced from Refinitiv database on 37 US banks from the period of 2013 to 2017. This study employs static and dynamic panel regression models that include random effects, fixed effects and dynamic generalised method of moments (GMMs) to test the hypotheses. Furthermore, system GMM is used to reduce the issue of endogeneity, measurement error, omitted variables bias and bank-specific heterogeneity. Findings We identify a significant positive relationship between board gender diversity and the ESG performance of US banks. However, the result propounds non-significant moderating effect of ESG controversies on the board gender diversity–ESG performance nexus. Originality/value Literature on board gender diversity and ESG separately and predominantly explains firm/bank's financial performance. This study is one of the pioneering attempts to explain the role of board gender diversity on ESG performance. Although incremental, however, this study also contributes to the literature on ESG in the US context.

Purpose This study aims to investigate the effects of board cultural diversity (BCD) and board gender diversity (BGD) of the board of directors on environmental, social and governance (ESG) performance in the European banking sector using resource-based view (RBV) theory. In addition, this study analyses the linkages between BCD and BGD and knowledge sharing on the board of directors to improve ESG performance. Design/methodology/approach This study selected a sample of European-listed banks covering the period 2021. ESG and diversity variables were collected from Refinitiv Eikon and analysed using the ordinary least squares model. This study was conducted in the European context regulated by Directive 95/2014/EU, which requires sustainability disclosure. The original population was represented by 250 banks; after missing data were excluded, the final sample comprised 96 European-listed banks. Findings The findings highlight the positive linkages between BGD, BCD and ESG scores in the European banking sector. In addition, the findings highlight that diversity contributes to knowledge sharing by improving ESG performance in a regulated sector. Nonetheless, the combined effect of BGD and BCD negatively impacts ESG performance. Originality/value To the best of the authors’ knowledge, this is the first study to measure and analyse a regulated sector, such as banking, and the relationship between cultural and gender diversity for sharing knowledge under the RBV theory lens in the ESG framework.

This study focused to understand the impact of the social pillar of ESG (Environmental, Social, and Governance) practices on the sustainability of organizations. A systematic review of the literature was carried out and the analysis of these articles revealed that in recent years investors have shown a growing interest in ESG, guided by financial value. ESG data, scientifically grounded and focused on investments, offers greater transparency to investors, but faces challenges in defining metrics due to the distinct nature of the three pillars. Companies with better ESG performance also contribute to community development. However, the social dimension of ESG has received less attention than the environmental and economic dimensions. Human-centric organizations that use ESG practices make an impact on the environment by implementing sustainable measures that reduce health risks and workload. In the social sphere, labor management, diversity and inclusion programs increase satisfaction and productivity at work. In corporate governance, improved strategies should consider employees' occupational stress and gender diversity in senior management and boards, as it plays a key role in ESG disclosure and performance. There are gaps in the literature regarding the three ESG pillars, especially regarding the social dimension and diversities. The lack of academic consensus on the impact of engaging in ESG practices indicates the need for more studies and empirical research to advance knowledge about ESG and sustainability in organizations. Overcoming these limitations can allow for a better understanding and effective implementation of ESG practices, boosting organizational sustainability.

The topic of gender diversity on corporate boards is becoming increasingly significant globally, particularly in the Gulf Cooperation Council (GCC) region. Investors are progressively taking environmental, social, and governance (ESG) considerations, such as gender diversity and sustainability reporting when making investment decisions. The research contributes to the existing but limited academic literature on gender diversity, corporate governance, and sustainability reporting in emerging markets by specifically examining the GCC region. The study emphasizes the strategic significance of adopting gender diversity and sustainability reporting as a means to improve company reputation and engage stakeholders for companies in the GCC. The purpose of this study was to investigate the board gender diversity and its impact on sustainable development goals (SDGs) reporting. The study collected a sample of 50 banks from the GCC region over 11 years from 2013 to 2023. The study concluded that return on assets (ROA), female on board, size, and book value (price-to-book ratio) had a positive impact on the SDGs, while leverage had a negative impact. Thus, this paper recommended including more females on boards to enhance the performance of companies towards reporting SDGs. Also, companies have to concentrate on increasing profitability, getting larger in size, and growing more in the market in order to attain SDGs as required by the GCC’s 2030 Vision. Nevertheless, companies have to reduce leverage to reduce risk and increase the possibility to move towards their SDGs. The results of the paper are robust by applying the maximum likelihood estimator (MLE).

Purpose This study aims to investigate the impact of environmental, social and governance (ESG) disclosures, financial reporting quality (FRQ) and illicit financial flows (IFFs) on investment efficiency (INVEFF) in the Gulf Cooperation Council (GCC) region and examine the moderating role of financial constraints in these relationships, focusing on non-financial firms. Design/methodology/approach Fixed-effect panel regression models are applied to examine the impact of ESG disclosures, FRQ and IFF along with the moderating role of financial constraints using data from 62 non-financial firms for the period 2015 to 2022, encompassing both pre- and post-COVID-19 periods to examine the pandemic effects. Findings The empirical results reveal a consistently positive relationship between FRQ and INVEFF, whereas IFFs exhibit a significant negative impact. ESG disclosures show a mixed effect, with potential inefficiencies arising when financial constraints limit firms' strategic flexibility. Furthermore, financial constraints appear to aggravate the negative consequences of IFFs and weak financial reporting. Limited regulatory enforcement around ESG disclosures also diminishes their signaling strength, particularly in capital-constrained environments. Practical implications The findings propose that INVEFF can be enhanced by improving financial reporting transparency and curbing IFFs. Simultaneously, policymakers are encouraged not only to standardize ESG frameworks but also to support financially constrained firms in aligning with sustainability goals. Originality/value This study offers empirical evidence from an underexplored emerging market, GCC, while filling a research gap by examining how financial constraints moderate the impact of ESG, FRQ and IFFs on INVEFF. It further highlights how ESG disclosures in a voluntary environment may serve as a governance tool, especially during periods of economic disruption.

PurposeThis research aims to investigate the relationship between environmental, social and governance (ESG) factors and the performance of real estate companies before and after the COVID-19 pandemic. By conducting a comprehensive case study analysis, we will explore how real estate companies' adoption of ESG practices has influenced their financial performance, market value and resilience during these uncertain times. The findings of this study will contribute to the existing body of knowledge on the relationship between ESG factors and company performance, specifically within the real estate sector. Moreover, the research outcomes will offer practical implications for real estate companies, investors, policymakers and other stakeholders, aiding them in making informed decisions regarding ESG integration and its potential benefits in uncertain times. Overall, this research aims to shed light on whether ESG factors truly enhance the performance of real estate companies, considering the unique challenges posed by the COVID-19 pandemic and sanctions. By examining the case study before and during uncertain times including COVID-19 pandemic and sanctions, we provide valuable insights into the role of ESG practices in shaping the future of the real estate industry.Design/methodology/approachThe study focuses on the selection process and main model used to investigate the relationship between ESG factors and firm performance. The data is divided into four groups based on ESG quartiles to analyze differences between firms with high and low ESG scores. The Difference-in-Differences (DID) model is employed to assess anomalous returns and stock volatility across different ESG quartiles before and after the COVID-19 pandemic. Panel data models are utilized to study the association between ESG and firm performance, with random effects and fixed effects estimators considered. The study builds a model to analyze the impact of ESG on financial performance indicators, incorporating various factors and control variables. Additionally, the Average Treatment Effect on the Treated (ATET) analysis and DID model are explored to evaluate the causal impact of ESG on firm performance. The study emphasizes the importance of testing for parallel trends to ensure the validity of the ATET analysis and it presents a generalized DID model to examine the relationship between ESG scores and company performance outcomes.FindingsOur study's main conclusions show that, in a world with some degree of stability, ESG not only does not improve but, in some situations, also hurts firms' success. On the other hand, at times of notable worldwide unrest, like the COVID-19 pandemic, firms with better ESG ratings demonstrate exceptional stock market success and a noteworthy ability to rebound from a crisis. Moreover, we note that investors truly prioritize sustainable investments as a risk mitigation strategy in addition to their environmental and social duties only when companies face sufficiently significant risks. The results will highlight the significance of sustainable and responsible investment for investors and provide management with more knowledge to create effective ESG strategies for their companies.Practical implicationsBy incorporating sustainability and responsibility into their operations, businesses may reduce risk, perform better over the long run and benefit society and the environment. As investors come to understand the importance of ESG issues in their decision-making, the global landscape is experiencing a transformation. Therefore, in the era when stakeholders, such as consumers, workers and shareholders, want more responsibility and transparency when it comes to ESG practises, it is crucial that companies should devote their priority to their ESG performance in order to reduce the danger of slipping behind, especially in light of the increasing importance of sustainability issues and changing laws. However, in the case of small-sized firms, investment policies to improve companies’ governance need to be controlled in moderation during the period of stability because it will create financial pressure and leave them without enough resources to cope with negative impacts during uncertain period. In sum, sustainable and ethical investment is not only a fad; rather, it is a vital and unavoidable route for companies looking to prosper in an unpredictable and complicated global environment.Originality/valueThis research study significantly enhances the existing academic discourse surrounding the relationship between ESG factors and firm performance, particularly, in periods of uncertainty. The findings underscore the critical importance for real estate companies to place a greater emphasis on ESG practices in order to not only benefit themselves but also to improve their overall performance and sustainability in the long term. By shedding light on the positive outcomes associated with prioritizing ESG considerations, this study offers valuable insights for real estate firms seeking to enhance their competitive advantage and stakeholder value in today's dynamic business landscape.

Purpose This study aims to examine the impact of board gender diversity (BGD) and sustainability committees (SC) on environmental, social and governance (ESG) controversies, aiming to assess the effectiveness of these governance mechanisms in mitigating ESG risks. Design/methodology/approach The study used panel data from 2,812 nonfinancial US publicly listed firms between 2018 and 2023. To ensure robust results, various estimation techniques were used, including alternative measures, the Heckman two-stage model to address potential self-selection bias and the two-stage least squares method to tackle endogeneity concerns. Findings The results indicate that both BGD and SC negatively and significantly impact ESG controversies. Firms with greater gender diversity on their boards and established SC are less likely to face ESG controversies. In addition, the study found that the interaction effects of BGD and SC are more effective in reducing ESG controversies than either mechanism alone. Practical implications Firms that prioritize gender diversity on their boards and have active SCs manage ESG risks more effectively. Investors should consider these factors when evaluating potential investments, as such firms are likely to offer better long-term performance and stability. By focusing on firms with strong ESG practices, investors can mitigate risks associated with ESG controversies and enhance the overall resilience of their investment portfolios. Social implications By highlighting the role of gender-diverse boards and SC in mitigating ESG controversies, this study supports broader societal goals of gender equality and responsible business conduct. This aligns with sustainable development goal (SDG) 5 (gender equality) by advocating for increased female representation in leadership roles and SDG 12 (responsible consumption and production) by encouraging sustainable practices in business operations. Originality/value This study provides new insights into the effects of BGD and SC on ESG controversies, offering valuable guidance for policymakers and business leaders seeking to enhance corporate governance and sustainability.

This paper aims to investigate the moderating effect of board gender diversity (BGD) and sustainability committee in the relationship between environmental, social and governance (ESG) disclosure and the performance of the firm in European countries. This study encompasses an analysis of data obtained from non‐financial firms listed in European markets spanning the years 2013–2022. The findings indicate that ESG disclosure has a pronounced and statistically significant influence on the performance of the firms. Furthermore, BGD plays a positive moderating role in enhancing the relationship between ESG disclosure and ROA. In addition, the sustainability committee showed a moderate positive relationship. The findings have substantial managerial implications for professionals spanning different sectors, such as practitioners, policymakers, senior executives, and corporate leaders. Firms are advised to strategically consider board restructuring to enhance effectiveness in overseeing and advancing ESG practices. Prioritizing ESG efforts is recommended as it enhances overall performance, with investing in gender diversity on boards further strengthening this relationship. Establishing a dedicated sustainability committee can also positively impact firm outcomes, highlighting the importance of proactive ESG integration within corporate strategies. Analyzing the role of BGD as a moderating factor represents a valuable addition to the current body of research. It enhances our comprehension of how ESG disclosure indirectly influences firm performance.

PurposeThis study aims to examine the role of royal family members’ board of directors, as a specific aspect of corporate governance, on the firm’s environmental, social and governance (ESG) disclosures. Many firms in the world enjoy special political connections, benefit from tax exemptions and favorable treatments that are largely responsible for their economic endurance and strong performance.Design/methodology/approachThe authors collect data from Thomson Reuters database on Gulf Cooperation Council (GCC)-listed firms for 2010–2018. Royal family board directors’ data is manually collected using a systematic approach to ensure accuracy. Fixed effects’ panel regression model is used to estimate relationships. The authors interact variables to test the moderating effect of board independence and sustainability committee on the influence of royal family board directors.FindingsThis study finds that royal family directors on GCC boards negotiate fewer ESG reporting in firms. While board independence, board gender diversity, sustainability committee and governance committee increase the level of ESG-disclosures in the traditional way of reducing agency costs to stakeholders, this study finds that royal family board members convey beneficial consequences on firms without perceiving the need to disclose their ESG activities. Additionally, these firms do not show a spillover effect from the royal family members on the board’s independence or the existence of a sustainability committee; rather these members use a different channel for protecting and building the business value. These results are robust with respect to controls for company size, leverage, return on assets and growth. Instrumental variables are then introduced in the analysis to perform a sensitivity test.Originality/valueThe study results indicate the need to improve GCC market transparency over supplementary limitations that exist on their corporate governance condition. This may be consequential to regulators, lenders and investors. The results suggest the need to raise awareness of the importance of governance and balancing firms’ financial and social performance in the presence of royal family board directors. Policymakers and governance agencies are responsible for promoting the importance of forming sustainability committees and having a set of performance indicators that measure the effectiveness of their actions.