Sustainability and Stability: Examining the Impact of ESG Controversies and Executive Diversity on Financial Distress

ABSTRACT This study investigates the relationship between environmental, social, and governance (ESG) controversies, executive gender diversity, and financial distress. Using a UK sample covering the period 2011–2022, the analysis reveals a positive association between ESG controversies and financial distress, indicating that negative ESG perceptions can exacerbate firms' financial challenges. In contrast, executive gender diversity is found to have a negative relationship with financial distress, suggesting its potential protective role in mitigating financial risks. Furthermore, the results reveal a substitution effect between gender diversity and ESG controversies in influencing financial distress. Overall, this research contributes to the academic literature on the financial implications of ESG practices and provides valuable insights for companies and policymakers by emphasizing the critical interplay among ESG performance, executive gender diversity, and financial stability.