ESG, gender diversity and market stability: how sustainable governance reduces stock volatility in FTSE 100 firms

Purpose This study aims to examine the relationship between environmental, social and governance (ESG) initiatives, board gender diversity and stock price volatility (PVOL) among FTSE 100 firms from 2015 to 2023. Specifically, it investigates whether board gender diversity moderates the ESG volatility relationship, thereby enhancing financial stability. Design/methodology/approach A panel data analysis is conducted using ordinary least squares (OLS), two-stage least squares (2SLS) and generalized method of moments (GMM) regressions to account for potential endogeneity and strengthen the robustness of results. This study leverages instrumental variables (IVs) to control for omitted variable bias and reverse causality, ensuring reliable empirical insights. Findings The results show that stronger ESG performance significantly reduces volatility (PVOL), and this stabilizing effect is amplified in firms with more gender-diverse boards. These findings remain consistent when volatility is assessed using realized volatility (RLZDVOL), confirming that the results are not merely artifacts of volatility specification. This evidence underscores the complementary roles of ESG and gender diversity on boards in strengthening corporate stability. Practical implications The findings emphasize the strategic importance of ESG integration in corporate governance and risk management. They also highlight the role of gender-diverse leadership in promoting financial stability and enhancing the confidence of investors. These insights are valuable for corporate executives, policymakers and investors, advocating stronger ESG policies, improved board diversity mandates and more sustainable investment strategies. Originality/value This study fills a critical gap in the literature by linking ESG factors to stock price volatility and highlighting the moderating role of board gender diversity. This study provides new evidence of how board mechanisms can enhance ESG effectiveness and contribute to long-term market stability. This study offers novel insights into sustainable finance, corporate governance and investment decision-making.