ESG and board characteristics – an Australian study. How does audit tenure moderate the relationship between ESG performance and gender diversity?

In the current economic climate, corporations face increasing scrutiny over their environmental, social and governance (ESG) practices. Firms are expected not only to deliver financial performance but also to demonstrate accountability in addressing environmental and social challenges. As a result, long-term success is increasingly linked to how effectively firms manage ESG-related risks and opportunities (Asante-Appiah and Lambert, 2022). Climate risks, in particular, have become financially material for institutional investors with long-term investment horizons (Krueger et al., 2020). At a broader level, the United Nations’ Sustainable Development Goals (SDGs) underscore the urgency of addressing global sustainability challenges and reinforce the importance of transparent and comparable ESG reporting (GRI, 2018).

Research on ESG and sustainability reporting has grown rapidly across Southeast Asia and the Asia-Pacific region. Prior studies highlight improvements in ESG disclosure and performance but also document significant variation across firms and industries. In Australia, evidence suggests that ESG practices have strengthened over time, particularly in governance-related dimensions (Galbreath, 2013; Gholami et al., 2022). Board characteristics, such as gender diversity, have been shown to enhance corporate social responsibility (CSR) engagement and disclosure (Galbreath, 2018; Rao and Tilt, 2016b).

Despite these advances, important concerns remain regarding the quality and credibility of ESG reporting. Existing studies suggest that disclosure does not necessarily reflect substantive sustainability practices, particularly in the absence of strong stakeholder engagement and consistent reporting frameworks (Lokuwaduge and De Silva, 2022; Michelon et al., 2019). This creates challenges for investors and other stakeholders in assessing firm-level ESG performance. Consequently, there is a need to better understand the governance mechanisms that drive meaningful ESG outcomes.

Australia provides a relevant setting to examine these issues. Regulatory attention and investor demand for ESG accountability have increased significantly in recent years. For example, the Chairman of the Australian Securities and Investments Commission (ASIC), Joe Longo, emphasised the importance of embedding ESG considerations into corporate strategy. At the same time, the rapid growth of socially responsible investment reflects rising stakeholder expectations around sustainability. Together, these developments place pressure on firms to strengthen both ESG performance and disclosure practices.

Despite the growing body of literature on ESG practices and corporate governance, several important gaps remain. Firstly, prior studies in the Australian context have largely focused on ESG disclosure and its association with financial performance, with limited attention given to how specific governance mechanisms influence ESG performance outcomes. In particular, the roles of audit committee (AC) independence, chief executive officer (CEO) duality and audit tenure remain underexplored, especially when considered alongside board gender diversity. Secondly, existing studies often examine these governance characteristics in isolation, without considering their potential interaction effects. Thirdly, there is limited evidence on how these relationships have evolved in the post-SDG era, where stakeholder expectations and regulatory pressures have intensified. Addressing these gaps, this study examines how key governance mechanisms jointly shape ESG performance among large Australian listed firms, while also considering the moderating role of audit tenure.

This study contributes to the literature by examining how specific governance mechanisms influence ESG performance among large Australian listed firms. In particular, we focus on AC independence, board gender diversity, CEO duality and audit tenure. While prior research has largely examined ESG disclosure and financial outcomes, this study shifts attention to governance structures that may shape ESG performance more directly. In addition, we investigate the moderating role of audit tenure in the relationship between board gender diversity and ESG outcomes, offering new insights into how governance mechanisms interact.

The AC plays a central role in overseeing reporting quality and enhancing transparency (Menon and Williams, 1994). As firms increasingly obtain assurance for sustainability reporting, its importance extends beyond financial reporting. At the same time, board gender diversity has been associated with stronger ethical orientation and improved sustainability practices (Rao and Tilt, 2021). However, the role of CEO duality remains contested, with mixed evidence on its impact on disclosure and governance effectiveness.

Consistent with these perspectives, our findings indicate that AC independence and board gender diversity are positively associated with ESG performance. In contrast, CEO duality is negatively associated with ESG outcomes. Furthermore, the interaction between gender-diverse boards and longer audit tenure is negatively related to ESG performance, suggesting potential governance trade-offs.

The remainder of this paper is structured as follows. Section 2 reviews the relevant literature, outlines the theoretical framework and develops the hypotheses. Section 3 describes the research methodology. Section 4 presents the descriptive statistics, correlation analysis and empirical results and discussion, including additional analyses. The final section concludes with a summary of the key findings, implications, limitations and directions for future research.

This study draws on stakeholder–agency theory and resource dependence theory as its primary theoretical foundations. A combined theoretical perspective is appropriate, as it addresses the limitations of traditional agency theory, which focuses primarily on conflicts between shareholders and managers. Stakeholder–agency theory extends this view by recognising that firms are accountable to a broader set of stakeholders, including employees, regulators and the wider community (Hill and Jones, 1992). This integrated perspective helps explain how governance mechanisms can mitigate conflicts not only between managers and shareholders but also among multiple stakeholder groups (Gerged, 2020; Zolotoy et al., 2021).

Within this framework, governance mechanisms such as AC independence and CEO duality are viewed as critical in shaping monitoring effectiveness and aligning managerial actions with stakeholder interests. In addition, audit tenure is considered an important moderating factor, as it influences the strength of external monitoring and, consequently, the effectiveness of internal governance structures.

Furthermore, this study draws on resource dependence theory to explain the role of board gender diversity. This perspective suggests that organisations rely on external resources for survival and that board composition can enhance access to valuable resources, networks and legitimacy (Hillman et al., 2007; Pfeffer and Salancik, 1978). Gender-diverse boards, in particular, contribute broader perspectives and improved decision-making, enabling firms to better address complex ESG challenges.

Overall, by integrating stakeholder–agency theory and resource dependence theory, this study provides a comprehensive framework for examining how internal governance mechanisms and external monitoring jointly influence ESG performance among large Australian listed firms. These theoretical linkages are further developed in the hypotheses and empirical analysis sections.

ESG issues have gained increasing prominence in recent years, with a growing body of research examining ESG performance across different institutional and market settings (Abbassi et al., 2024; Bamahros et al., 2022; Broadstock et al., 2021; Zahid et al., 2020). This expanding literature reflects the rising importance of sustainability considerations in corporate decision-making.

Prior studies provide mixed evidence on the financial and strategic implications of ESG performance. For instance, Saleh et al. (2023) document a negative relationship between ESG disclosures and cash holdings across European firms, suggesting potential trade-offs between sustainability engagement and liquidity management. In contrast, other studies highlight the economic benefits of ESG practices. Lee et al. (2021) find that high-ESG portfolios outperform low-ESG portfolios in terms of stock performance, diversification and risk management. Similarly, Kim and Li (2021) show that ESG engagement enhances corporate profitability and improves credit ratings, particularly for larger firms. Consistent with this, Limkriangkrai et al. (2017) report that firms with higher ESG ratings benefit from improved access to debt financing.

Beyond financial outcomes, ESG performance is also linked to governance and strategic decision-making. Treepongkaruna et al. (2024) find that firms with larger boards are better able to address ESG controversies, while Lokuwaduge and De Silva (2022) emphasise the importance of transparent ESG measurement and disclosure in effective business management. Moreover, ESG practices have been shown to remain resilient during periods of economic uncertainty, as evidenced by Bialkowski and Slawik (2022) in the context of the COVID-19 pandemic.

Overall, the ESG literature has evolved towards a more nuanced understanding of how ESG dimensions interact with internal governance structures and firm performance (Li et al., 2021). In this regard, the development of sustainability strategies provides firms with a framework to balance competing economic, environmental and social objectives (Annesi et al., 2025).

ACs are widely recognised as a fundamental component of corporate governance mechanisms (Menon and Williams, 1991). Among their attributes, independence is considered critical for enhancing financial reporting quality. Baxter and Cotter (2009) argue that independent ACs improve the quality of financial statements and play an important role in the reporting process.

From an agency theory perspective, the separation of ownership and control creates conflicts between shareholders (principals) and management (agents). Independent ACs act as an effective monitoring mechanism, reducing managerial opportunism and enhancing reporting transparency. Extending this view, stakeholder theory emphasises that firms are accountable to a broader set of stakeholders beyond shareholders. In this context, independent ACs are more likely to promote transparency, ethical governance and credible ESG practices, thereby strengthening stakeholder trust and organisational legitimacy (Altin, 2024).

Empirical evidence generally supports the benefits of AC independence. Prior studies show that independent ACs are associated with higher earnings quality and lower discretionary accruals (Bronson et al., 2009; Safari, 2017). In the ESG context, board independence has been linked to improved sustainability performance (Hussain et al., 2018), while AC independence is positively associated with the use of high-quality assurance providers (Al-Shaer and Zaman, 2018) and enhanced ESG reporting quality (Arif et al., 2021; Pozzoli et al., 2022). Evidence from Australia also suggests a positive relationship between AC independence and CSR disclosure (Appuhami and Tashakor, 2017).

However, some studies report mixed findings, with limited or negative associations between board independence and non-financial disclosure (Haniffa and Cooke, 2005; Li et al., 2012). Despite this, the dominant theoretical and empirical evidence suggests that independent ACs strengthen monitoring and enhance ESG outcomes.

Accordingly, drawing on agency and stakeholder theories, we expect that AC independence improves ESG performance. Therefore, we propose the following hypothesis:

Research on board gender diversity and corporate governance has developed over several decades (Farrell and Hersch, 2005; Muttakin et al., 2022; Oradi and Izadi, 2020; Wang and Coffey, 1992). More recently, attention has shifted towards the role of female directors in shaping sustainability and ESG outcomes (Amorelli and Garcia-Sanchez, 2021; Galbreath, 2018; Ling et al., 2026; Rao and Tilt, 2016a).

From a stakeholder theory perspective, gender-diverse boards are more likely to be responsive to the needs of a broader range of stakeholders. Female directors are often associated with stronger ethical orientation, greater sensitivity to social and environmental concerns, and a more inclusive approach to decision-making (Manita et al., 2018; Zahid et al., 2020). As a result, firms with higher female representation on boards are better positioned to address increasing stakeholder expectations regarding sustainability and CSR (Rao and Tilt, 2021). Moreover, the presence of women on boards can signal stronger governance, transparency and accountability to external stakeholders (Wasiuzzaman and Wan Mohammad, 2020).

In addition, resource dependence theory suggests that board diversity enhances access to valuable resources, perspectives and external networks (Hillman et al., 2000; Pfeffer and Salancik, 1978). Gender-diverse boards bring varied expertise and viewpoints, which improve decision-making quality and strengthen the firm’s ability to manage complex ESG challenges (Albitar et al., 2020).

Empirical evidence largely supports a positive relationship between board gender diversity and ESG outcomes. Prior studies find that female representation on boards is associated with higher ESG performance and disclosure (Galbreath, 2018; Rao and Tilt, 2016a; Uyar et al., 2021). However, some studies report mixed findings, suggesting that the effect may depend on factors such as critical mass or institutional context (Manita et al., 2018; Pizzi et al., 2020).

Overall, drawing on stakeholder theory and resource dependence theory, we expect that board gender diversity enhances ESG performance. Accordingly, we propose the following hypothesis:

CEO duality arises when the roles of CEO and board chair are held by the same individual, resulting in a concentration of managerial power. From an agency theory perspective, this concentration of authority may weaken board independence and reduce the effectiveness of monitoring. Prior studies suggest that CEO duality can impair oversight, increase information asymmetry and lead to higher agency costs (Rechner and Dalton, 1991). As a result, powerful CEOs may prioritise personal or short-term financial objectives over long-term sustainability goals (Mahoney and Thom, 2006).

In the context of disclosure, CEO duality has been associated with lower levels of voluntary reporting, including CSR and ESG disclosures (Allegrini and Greco, 2013; Chau and Gray, 2010; Rashid et al., 2020). These findings suggest that reduced board independence limits transparency and weakens accountability to stakeholders.

However, the empirical evidence remains mixed. Some studies find that CEO duality may enhance CSR disclosures in certain institutional settings, particularly where ownership is concentrated (Dias et al., 2017; Handayanti et al., 2022). Other studies report no significant relationship between CEO duality and disclosure or firm performance (Cheng and Courtenay, 2006; Ho and Wong, 2001).

Despite these mixed findings, the dominant theoretical argument suggests that CEO duality weakens governance effectiveness and reduces the firm’s responsiveness to stakeholder demands. Accordingly, drawing on agency theory, we expect CEO duality to negatively influence ESG performance. Therefore, we propose the following hypothesis:

Audit tenure has attracted considerable attention in the corporate governance and auditing literature, particularly in relation to auditor independence and monitoring effectiveness. From an agency theory perspective, external auditors serve as an important monitoring mechanism that mitigates information asymmetry and constrains managerial opportunism. However, extended audit tenure may give rise to familiarity threats, whereby long-standing relationships between auditors and clients reduce professional scepticism and impair auditor independence (DeAngelo, 1981; Gul et al., 2007). As a result, the effectiveness of external assurance in promoting transparency and accountability may diminish over time.

In the context of ESG reporting, auditor independence is particularly important due to the relatively discretionary and less standardised nature of sustainability disclosures. Prior studies suggest that longer audit tenure may reduce the credibility of non-financial reporting, as auditors may become less inclined to challenge managerial discretion in ESG-related disclosures (Ruiz-Barbadillo and Martinez-Ferrero, 2023). This can weaken the overall governance environment and reduce the effectiveness of other internal governance mechanisms.

At the same time, board gender diversity has been widely associated with stronger ESG engagement, as female directors are often found to enhance ethical oversight, stakeholder responsiveness and transparency (Rao et al., 2012; Wasiuzzaman and Wan Mohammad, 2020). Drawing on stakeholder theory, gender-diverse boards are more likely to prioritise sustainability issues and respond to broader stakeholder expectations. Similarly, resource dependence theory suggests that diverse boards contribute valuable perspectives and external linkages that support ESG initiatives.

However, the effectiveness of gender-diverse boards in promoting ESG performance may depend on the strength of complementary governance mechanisms. When audit tenure is prolonged, the potential decline in auditor independence may weaken the external monitoring environment. This, in turn, may dampen the positive influence of gender-diverse boards, as reduced assurance quality limits the credibility and enforcement of ESG practices. In other words, while gender diversity enhances internal governance, extended audit tenure may undermine the external verification process necessary to sustain high-quality ESG performance.

Accordingly, we expect that longer audit tenure attenuates the positive relationship between board gender diversity and ESG performance. Therefore, we propose the following hypothesis:

After using standard exclusions, our initial data set consists of 1,824 firm-year observations for the period 2017–2023. We further eliminate 668 firm-year observations due to missing data, resulting in a final sample of 1,156 firm-year observations. This research focuses on the top 261 listed firms in Australia (excluding those with missing ESG data), as they are subject to heightened scrutiny from multiple stakeholders regarding corporate and voluntary disclosures (Hackston and Milne, 1996). The selected period, spanning 2017–2023, allows for an updated analysis of ESG reporting in Australia following the introduction of the United Nations SDGs. ESG scores and financial data are sourced from the London Stock Exchange Group (LSEG) Refinitiv Workspace database.

The sample selection procedure is summarised in Table 1 Panel A. We have also included the final sample based on industry classification, which is depicted in Table 1 Panel B. From the classification, we observed that the top three largest industries in the final sample are basic materials (19.55%), financials (15.40%) and consumer cyclicals (14.10%). We have included all industries in this sample because all firms are subject to similar expectations and scrutiny from the stakeholders and regulators concerning ESG initiatives.

In line with previous research on sustainability reporting, ESG scores are obtained from the LSEG Refinitiv Workspace database, which provides three different measurements of ESG (Paolone et al., 2022; Pozzoli et al., 2022). LSEG Refinitiv ESG database evaluates the ESG performance of listed firms based on information reported across three different pillars (ESG) encompassing 10 different ESG topics. The measurements used reflect the materiality, data availability and the relevance of the industry. We adopt the logarithm of 1 plus the ESG score (ESG_SCORE) and the logarithm of 1 plus the ESG combined score (ESG_COMB), both scores obtained from the database. The ESG combined score is discounted for significant ESG controversies affecting the corporations covered by LSEG. The ESG score is a weighted average of the ESG pillar scores, with the weighting scheme determined by Refinitiv’s methodology. To ensure that our results are not driven by this scheme, we construct the variable ESG_AVE as an equally weighted average of the three pillars, assigning the same weight to each dimension. We further take the logarithm of “1 plus ESG_AVE”. Taken together, these measures allow us to examine whether our findings are robust to alternative constructions of ESG performance, rather than relying on a single measure. Definitions of the dependent variables can be found in  Appendix.

Independent AC (AC_IND) is measured by adopting the percentage of board members who are independent. Such measures have been adopted extensively and consistently in the corporate governance research involving the sustainability and financial reporting (Al-Shaer and Zaman, 2018; Appuhami and Tashakor, 2017; Ghafran et al., 2022).

We measure gender diversity of board members by using a continuous variable (GEND). A typical measure of gender diversity is adopting the percentage of female directors to overall directors on the board (Ahmed and Hussain, 2024; Groening, 2019). This proxy has been used in previous literature involving female directors on the board (Reddy and Jadhav, 2019; Sellami and Cherif, 2020).

We measure CEO duality diversity using a dichotomous variable (CEOD), which is universally adopted by academics in studies associated with CEO attributes (Krause et al., 2014). An indicator variable where firm i is scored one (1) if the same individual occupies the roles of chairperson of the board and CEO at the end of time period t; otherwise, it will be scored zero (0).

In harmony with previous research on ESG and sustainability, we are controlling for variables that are closely linked with sustainability reporting and board characteristics (Orazalin, 2019; Zampone et al., 2022). We control for policy for board size (POL), firm size (TA), CEO board member (CEOM), board tenure (BTEN) and audit tenure (ATEN) as past literature indicates that such variables have an effect on sustainability reporting and governance mechanisms. The definition of these control variables is provided in  Appendix.

Regression analyses are conducted to assess the relationship between independent variables and ESG performance. The first regression model examines ESG_SCOREit in relation to AC independence, gender diversity and CEO duality, while controlling for year-fixed and firm-fixed effects. This analysis is performed using equation (1) as follows:

The key variables of interest are AC_IND_it, GEND_it and CEOD_it. The coefficients for these variables are expected to be significant in the ESG_SCORE_it model.

The second regression model examines ESG_COMB_it in relation to AC independence, gender diversity and CEO duality, while controlling for year-fixed and firm-fixed effects. This analysis is performed using equation (2) as follows:

The key variables of interest are AC_IND_it, GEND_it and CEOD_it. The coefficients for these variables are expected to be significant in the ESG_COMBit model.

The third regression model examines ESG_AVE_it in relation to AC independence, gender diversity and CEO duality, while controlling for year-fixed and firm-fixed effects. This analysis is performed using equation (3) as follows:

The key variables of interest are AC_IND_it, GEND_it and CEOD_it. The coefficients for these variables are expected to be significant in the ESG_AVE_it model.

The fourth regression model examines the moderating effect of audit tenure on the relationship between board gender diversity and ESG performance. The interaction term is constructed as the product of board gender diversity (GEND) and audit tenure (ATEN). This analysis is performed using equation (4) as follows:

The model controls for firm-fixed and year-fixed effects. The coefficient of the interaction term (i.e. β9) is expected to be significant. ESGit is alternatively measured using ESG_SCORE_it, ESG_COMB_it and ESG_AVE_it.

Table 2 details the descriptive statistics of the dependent variables (ESG ratings), independent and control variables that are used in this study. The mean aggregate for ESG_SCORE is 3.868 with a median of 3.965 and a relatively narrow standard deviation (0.44), suggesting a moderate but meaningful variation in ESG performance across the sample data. In addition, both ESG_COMB and ESG_AVE have similar statistics. This variation reinforces investigation into firm-level corporate governance mechanisms such as board composition and audit attributes. An average of 85.88% of the AC members are independent and this reflects the current norm for large public companies in Australia. This observation underlines the importance and adherence to the Australian Securities Exchange (2019) Principle 2 recommendation to structure the board to be effective and add value. Female directors have a mean percentage of 30.32% with a standard deviation of 12.48. Although the 40% recommended target set by Australian Institute of Company Directors has not been reached, this study captures the essence of differing levels of gender presentation in influencing ESG performance in large Australian listed firms. The average audit tenure (ATEN) is 6.571 with a standard deviation of 3.427, implying that audit tenure typically revolves around 6.6 years. The potential ramifications of audit tenure ranging from familiarity with the business operations to independence impairment are reflected in the interaction effects with gender diversity in the additional tests. The variable BTEN representing board tenure has a mean of 6.2 years suggesting that on average the board members are rotated every six years. Such board tenure is considered a good balance in terms of having experienced members while ensuring a consistent inflow of new skillsets to the board. The mean value of firm size (TA) is 21.66 (logged total assets), implying a skew towards large firms. This is in line with the inclusion of top ASX-listed companies, which are more likely to be subjected stakeholder expectations and ESG scrutiny. Indicating that the separation of the CEO and chairperson roles is a common practice in Australia, CEO duality (CEOD) is observed in only 9.5% of the sample. This statistic supports the ASX recommendations on separating the role of CEO and the chairperson to reduce excessive power in one individual. Collectively, the descriptive statistics reveal variation across major governance characteristics that strengthens the empirical basis for examining their effects on ESG performance.

Table 3 presents the Pearson correlation coefficients for all the variables in this study, including the three dependent variables: ESG_SCORE, ESG_COMB and ESG_SUM. The review of the correlation matrix reveals a few key insights.

Firstly, all three dependent variables, that is, ESG_SCORE, ESG_COMB and ESG_SUM exhibit a significant association with AC independence (AC_IND) at the 1% level. Secondly, the three ESG scores are also significantly correlated with board gender-diversity, our second independent variable (GEND) at the 1% level. Thirdly, the dependent variables indicate a positive association with CEO duality, our third independent variable (CEOD) at the 5% level. Fourthly, all the dependent variables have significant correlation with firm size (TA) at the 1% level, suggesting that larger companies tend to have more emphasis on ESG initiatives (Udayasankar, 2008).

Beyond the dependent variables, which are analysed separately in the regressions, none of the correlations in the matrix exceed the multi-collinearity threshold of 0.80 (Hair et al., 1995). Consequently, we do not find any unusual correlations that would raise concerns regarding multi-collinearity in our regression models.

Table 4 presents the main regression results examining the relationship between ESG performance and the key governance variables: AC independence (AC_IND), board gender diversity (GEND) and CEO duality (CEOD). The models exhibit strong explanatory power, with adjusted R² values of 85.4%, 79.2% and 84.9% across the three ESG measures. These values are consistent with prior studies examining ESG and corporate governance relationships (Asante-Appiah and Lambert, 2022).

Consistent with H1, AC independence is positively and significantly associated with all three ESG measures (ESG_SCORE, ESG_COMB and ESG_SUM) at the 1% level. This finding supports agency theory, which posits that independent ACs enhance monitoring and reduce managerial opportunism. It also aligns with stakeholder-oriented arguments that independent oversight promotes accountability and transparency to a broader set of stakeholders. The result is consistent with prior evidence (Al-Shaer and Zaman, 2018; Arif et al., 2021; Pozzoli et al., 2022) and highlights the importance of AC independence in strengthening ESG performance.

In line with H2, board gender diversity is positively and significantly associated with ESG performance across all model specifications at the 1% level. This finding supports both stakeholder theory and resource dependence theory. From a stakeholder perspective, gender-diverse boards are more responsive to environmental and social concerns, while from a resource dependence perspective, they provide broader expertise and external linkages that enhance ESG outcomes. The result is consistent with prior studies (Romano et al., 2020; Wasiuzzaman and Wan Mohammad, 2020) and suggests that gender diversity contributes meaningfully to firms’ sustainability performance.

Consistent with H3, CEO duality is negatively and significantly associated with ESG performance at the 5% level across all measures. This finding supports agency theory, which suggests that concentration of power weakens board independence and reduces effective monitoring. It also aligns with prior studies (Allegrini and Greco, 2013; Rashid et al., 2020) indicating that firms with CEO duality may prioritise short-term financial objectives over broader ESG considerations. This result reinforces governance best practices that advocate for the separation of the CEO and chair roles to enhance oversight and accountability.

Among the control variables, firm size (TA) is positively and significantly associated with ESG performance, suggesting that larger firms are more likely to engage in ESG activities. This is consistent with the view that larger firms face greater stakeholder scrutiny and possess more resources to invest in sustainability initiatives (D'Amato and Falivena, 2020).

Overall, the findings provide strong support for H1–H3 and demonstrate that both internal governance mechanisms (AC independence and board gender diversity) and leadership structure (CEO duality) play significant roles in shaping ESG performance.

Given that ESG disclosures are commonly included in annual reports and subject to external assurance, audit tenure is examined as a moderating variable. From an agency theory perspective, prolonged auditor–client relationships may impair auditor independence due to familiarity threats, thereby weakening external monitoring effectiveness (Singer and Zhang, 2018; Zheng et al., 2019)

To test H4, we interact audit tenure (ATEN) with board gender diversity (GEND). The results in Table 5 show that the interaction term (GEND × ATEN) is negative and statistically significant across all ESG measures. This finding supports H4 and indicates that audit tenure weakens the positive relationship between board gender diversity and ESG performance.

This result suggests that while gender-diverse boards enhance ESG outcomes, their effectiveness depends on the strength of external monitoring. When audit tenure is shorter, auditors are more likely to exercise independence and professional scepticism, reinforcing the governance role of diverse boards. In contrast, extended audit tenure may reduce audit quality and weaken the credibility and enforcement of ESG practices, thereby attenuating the positive influence of board diversity. This finding is consistent with prior evidence that long auditor tenure may compromise audit independence (de Jong et al., 2020; Ruiz-Barbadillo and Martinez-Ferrero, 2023).

Figure 1 further illustrates this moderating effect when alternative ESG proxies are used as the dependent variable. When auditor tenure is shorter (one standard deviation below the mean), gender diversity exhibits a strong positive association with ESG performance, as indicated by the steep upward slope. In contrast, when auditor tenure is longer (one standard deviation above the mean), the slope becomes considerably flatter, indicating that the positive effect of gender diversity diminishes and, in some cases, becomes negligible. This pattern is consistently observed across different ESG measures, although the degree of attenuation varies. Overall, the results suggest that the positive relationship between gender diversity and ESG performance is more pronounced when audit tenure is short but becomes weaker as audit tenure increases. This highlights the interaction between internal governance (board diversity) and external assurance (audit tenure) in shaping ESG outcomes.

From a practical perspective, the findings suggest that firms seeking to enhance ESG performance should complement board diversity with strong external monitoring mechanisms. In particular, periodic auditor rotation may help preserve auditor independence and strengthen the effectiveness of governance structures in supporting ESG initiatives.

We adopt two-stage least squares (2SLS) to deal with endogeneity issues in regression models that may take place due to omitted variables, measurement error and simultaneity. In the first stage, we use an instrumental variable AC management independence (AC_MGTIND) which appears to be strongly correlated with the endogenous variable. In the second stage of the 2SLS depicted in Table 6, all the independent variables of this study, AC independence (AC_IND), gender diversity (GEND) and CEO duality (CEOD) remain statistically and significantly associated with the dependent variables of ESG_SCORE, ESG_COMB and ESG_AVE.

These results suggest that there are no endogeneity concerns relating to omitted variables, measurement error and simultaneity that may appear in certain regression models.

To further validate the main results and the additional analysis of this study, we conduct a generalised least squares (GLS) analysis. To eliminate heteroskedasticity or autocorrelation in the error terms arising from the use of ordinary least squares, the GLS estimator is able to provide more efficient estimates (Musau et al., 2015).

Models 1–6 of Table 7 present the results of the GLS estimator. The results from this table indicate that the three independent variables, namely, AC independence (AC_IND), board gender diversity (GEND) and CEO duality (CEOD) remained significantly associated across all dependent variables in this study. Similarly, all three independent variables are also significantly associated with the dependent variables for the models, including the interaction term between gender diversity and audit tenure (GEND* ATEN), suggesting that there are no heteroskedasticity or autocorrelation issues in both the main analysis and the additional analysis.

As an alternative robustness check, we also re-estimated the fixed effects regressions using the raw ESG scores. The results reported in Table 8 are consistent with our baseline findings in Table 4. AC independence and gender diversity remain positively associated with ESG performance, whereas CEO duality is negatively associated with ESG performance. Empirically, this supplementary test validates the core findings for this study.

External auditors exercise greater independence and professional scepticism when audit tenure is shorter, whereas longer audit tenure may weaken and impair auditors’ independence due to familiarity and complacency. To assess the effect of prolonged audit tenure, we apply the entropy balancing method to estimate the effect of long versus short audit tenure and reduce sample selection bias. The sample is divided into treatment and control groups based on the median auditor tenure for each year, with the treatment group representing firms with long audit tenure and the control group representing firms with short audit tenure. Subsequently, the covariates in the control group are reweighted so that their mean, variance and skewness align with those of the treatment group. The results of this procedure are reported in Panel A of Table 9. Furthermore, the regression is re-estimated based on the balanced sample with the results shown in Panel B of Table 9. The findings reveal that the treatment variable (long auditor tenure) is significant and negative across all ESG measurements. This suggests that firms with longer auditor tenure exhibit lower ESG performance.

This study offers important theoretical contributions by more explicitly linking governance mechanisms to ESG performance through stakeholder–agency theory and resource dependence theory.

Firstly, the findings provide strong support for stakeholder–agency theory by demonstrating how governance structures shape firms’ responsiveness to multiple stakeholder interests. The positive association between AC independence and ESG performance suggests that independent oversight enhances accountability and encourages management to align with broader stakeholder expectations. In contrast, the negative relationship between CEO duality and ESG performance supports agency theory by showing that concentration of power weakens board monitoring and reduces attention to sustainability objectives. Furthermore, the moderating effect of audit tenure refines this theoretical perspective by highlighting that weakened external monitoring due to prolonged auditor–client relationships can undermine the effectiveness of internal governance mechanisms. Specifically, the finding that long audit tenure weakens the positive impact of board gender diversity on ESG performance demonstrates that both internal and external governance mechanisms must function jointly to reduce agency costs and information asymmetry.

Secondly, the study extends resource dependence theory by providing empirical evidence on the strategic value of board gender diversity in the ESG context. The positive association between female board representation and ESG performance suggests that diverse boards contribute not only additional perspectives and expertise but also stronger connections to external stakeholders. This enhances firms’ ability to respond to environmental and social challenges and strengthens their legitimacy. Importantly, the results refine this theoretical lens by showing that the benefits of board diversity are contingent on the quality of external monitoring, as reflected in the moderating role of audit tenure.

Overall, this study advances the literature by integrating stakeholder–agency and resource dependence perspectives, demonstrating that ESG performance is shaped by the interaction between internal governance structures and external assurance mechanisms. This provides a more nuanced understanding of how governance systems operate in promoting sustainable corporate outcomes.

The findings of this study provide several practical and policy implications for firms, regulators and governance bodies within the Australian context. Firstly, the results highlight the importance of effective board structures in enhancing ESG performance. In particular, the positive association between AC independence and ESG performance supports Recommendation 2.1 of the ASX Corporate Governance Council Principles and Recommendations (Australian Securities Exchange, 2019), which emphasises the need for independent directors, especially within ACs, to strengthen oversight and accountability.

Secondly, the negative relationship between CEO duality and ESG performance provides empirical support for Recommendation 2.5 of the ASX guidelines, which advocates for the separation of the roles of CEO and chair. This separation promotes balanced decision-making and enhances board independence, which is particularly important for advancing ESG strategies and ensuring broader stakeholder accountability.

Thirdly, the findings reinforce the importance of board gender diversity in improving ESG outcomes. Consistent with Recommendation 1.5 of the ASX guidelines, which encourages greater female representation on boards, our results suggest that gender diversity contributes meaningfully to governance quality and sustainability performance. This indicates that diversity initiatives should be viewed not merely as symbolic compliance measures, but as strategic mechanisms that enhance firms’ responsiveness to environmental and social challenges.

Importantly, this study also provides practical insights into the role of audit tenure. The finding that extended audit tenure weakens the positive impact of board gender diversity on ESG performance highlights the need for strong external monitoring to complement internal governance mechanisms. In practice, this suggests that ACs should actively evaluate auditor independence and consider implementing periodic auditor rotation or tendering processes. From a regulatory perspective, bodies such as ASIC and the ASX may consider reinforcing guidance on audit tenure and independence to ensure the credibility of ESG disclosures.

At the same time, policymakers should be mindful of potential trade-offs. For example, mandatory auditor rotation may increase audit costs or reduce audit effectiveness during transition periods due to learning effects. Similarly, focusing solely on numerical gender diversity targets without fostering inclusive board dynamics may limit the effectiveness of such initiatives. Overall, the findings suggest that a holistic governance approach integrating board independence, gender diversity and robust external audit oversight is essential for enhancing ESG performance. Aligning internal governance structures with strong and independent external assurance mechanisms will be critical in improving the credibility and effectiveness of sustainability practices in the Australian corporate environment.

As far as limitations are concerned, this study is confined to Australia’s institutional settings and the results may not generalise to other countries. Secondly, there is a likelihood that there may be other factors that have not been controlled for although an exhaustive range of control variables has been used. Thirdly, the study is reliant on secondary data and limited to large listed firms. Nonetheless, the possibility of such exclusions has insignificant consequence as the intention of this study is to investigate the relationship between ESG performance and board characteristics and not its causality. Subsequent research can explore other aspects of board characteristics like busy boards or the existence of a sustainability committee.

Despite its limitations, this study provides vital information and an update on the relationship between ESG performance and board characteristics in Australia. The implication from this study enhances the understanding and mechanism of AC independence, female directors in promoting the ESG agenda. Using a sample of 1296 firm-years for the period 2017–2023, we find that firms with independent AC have elevated ESG outcomes. We also find that gender-diverse boards are associated with higher ESG performance. Contrariwise, the findings of powerful CEOs impeding the ESG initiatives in listed Australian firms suggest that corporate decision makers and stakeholders to consider segregating the role of CEO and chairperson to improve board oversight. Similarly, extended audit tenure negatively moderates and weakens the positive association between gender diversity and ESG performance. The above findings corroborate the theoretical frameworks of stakeholder–agency theory and resource dependency theory used in this study. Moreover, the alternative measurements of our independent and dependent variables confirm the robustness of the main findings. We also address endogeneity issues, heteroskedasticity and autocorrelation concerns associated with studies on ESG performance by performing 2SLS regression analysis, GLS estimates regressions and entropy balancing. By addressing these different attributes of board characteristics, this research contributes to the debate surrounding ESG and sustainability practices in Australia.

The authors sincerely thank Professor Sanjay Singh, Chief Editor, and Professor Enrico Battisti, Associate Editor, for their careful consideration and stewardship of this manuscript. Authors also gratefully acknowledge the anonymous reviewers for their thoughtful and constructive comments, which have substantially enhanced the quality, clarity, and contribution of the paper. Their time, expertise, and valuable feedback are greatly appreciated.