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

Purpose This study examines the mediating role of board gender diversity in the relationship between environmental, social and governance (ESG) performance and bank risk-taking within the Gulf Cooperation Council (GCC) region. It aims to assess whether inclusive leadership enhances the effectiveness of ESG initiatives in promoting financial stability across Islamic and conventional banking systems. Design/methodology/approach Using a panel dataset of 56 GCC banks from 2015 to 2022, the research applies the Baron and Kenny (1986) mediation framework, alongside generalized method of moments (GMM) regressions and structural equation modeling (SEM). The analysis examines ESG scores, gender diversity metrics, and risk indicators (Z-scores and credit risk), controlling for firm-specific and macroeconomic factors. Findings The results show that strong ESG performance significantly lowers both insolvency and credit risk. Additionally, ESG engagement correlates positively with board gender diversity, and gender-diverse boards are linked to reduced risk-taking and partially mediate the ESG-risk relationship. This pattern holds for both Islamic and conventional banks. Practical implications The findings support policy reforms that integrate ESG and promote gender diversity in banking governance, thereby reducing risk exposure and improving financial resilience. Social implications By emphasizing women's leadership, this research aligns with broader societal goals of equity and inclusion, and shows how sustainability and diversity initiatives can foster inclusive governance cultures in the GCC region. Originality/value This study provides unique empirical insights from a region with distinct institutional and cultural contexts. It positions board gender diversity as a functional governance mechanism that effectively translates ESG commitments into risk mitigation strategies, enriching the theoretical discourse on ESG and inclusive leadership.