Power, pay and performance: unraveling the role of incentives in gender-driven ESG outcomes

Purpose This study aims to develop and test a conceptual model to explore the association between board gender diversity (BGD) and firms’ environmental, social and governance (ESG) performance, with a particular focus on the moderating role of sustainability-linked compensation incentives. It also examines how this relationship varies across industries and financial contexts. Design/methodology/approach The research draws on a decadal dataset (2013–2023) comprising 4,727 firm-year observations from 682 firms operating in the European Union. Data were sourced from Refinitiv and analyzed using the STATA software package. A system-GMM regression approach was employed to ensure the robustness and validity of the findings. Findings The study underscores the positive impact of board gender diversity on overall ESG performance and governance outcomes. However, its relatively insignificant influence on social performance highlights the need for independent, firm-specific social policies and corporate social responsibility (CSR) strategies. The findings emphasize the role of sustainability incentives in strengthening the gender-–ESG link across different industries. Practical implications The results provide valuable insights for policymakers, corporate managers and board members on enhancing ESG performance through gender-diverse boards and well-structured incentive mechanisms. Firms are encouraged to adopt tailored CSR policies to address the social performance gap identified in this research. Originality/value This study enriches the existing ESG literature by elaborating on the strategic importance of board gender diversity and its potential to leverage board composition for sustainable performance. It also contributes to the stakeholder and agency theory literature by broadening the understanding of how board diversity influences ESG outcomes.