This study examines board cultural diversity's (BCD) impact on corporate environmental, social and governance (ESG) performance, and its variation across markets and economic conditions.
We use an 18-country panel dataset of 5,294 firm-year observations from 2009–2020 from the Thomson Refinitiv database for firm-level variables and World Bank for country-level data. The analysis employs ordinary least squares and dynamic system generalised method of moments estimators. Propensity score matching is used to address potential endogeneity.
The study finds BCD positively affects ESG performance across model specifications. The effect is stronger for environmental and social dimensions, with a limited impact on governance. When cultural diversity is more evenly distributed across board members, it influences governance. Finally, ESG performance is highly persistent, with past performance significantly shaping current outcomes.
This study contributes to corporate governance theory by empirically showing that BCD positively impacts ESG performance. This deepens our understanding of how diverse leadership structures enhance firms' sustainability practices and transparency. BCD's influence on ESG reporting is a gradual, long-term process rather than having an immediate effect.
Investors should carefully consider directors' appointment, given their influence on ESG performance. BCD may be more effective as a strategic, forward-looking measure rather than a quick fix for current ESG performance.
We provide international evidence on ESG performance, particularly BCD's influence. Further, ESG performance is best modelled as a dynamic process influenced by past performance and evolving over time.
