Unveiling the Role of Corporate Governance in Shaping Environmental, Social, and Governance Performance and Firm Outcomes

Environmental, Social, and Governance (ESG) performance has become critical for businesses seeking transparency, sustainability, and stakeholder confidence. However, the extant evidence is equivocal regarding its influence on company performance. Corporate governance may play an important role in determining the efficacy of ESG efforts. Hence, this research investigates the relationship between corporate governance and firm performance, focusing on the moderating role of ESG performance, using unbalanced panel data from 370 Malaysian firms for the period from 2012 to 2023. For analysis of the data, fixed effects estimation, Driscoll–Kraay robust standard errors, and a subsample analysis were used. The results reveal that board expertise and independence enhance firm performance, whereas board gender diversity negatively affects market valuation (Tobin’s Q). Similarly, audit committee expertise shows a negative effect. Further, the results reveal that ESG strengthens the role of board expertise but weakens the influence of audit committee independence. This study offers practical and theoretical insights for policymakers, scholars, and stakeholders seeking to balance sustainability with financial performance, bridging a notable gap in the literature by thoroughly examining the relationship between board gender diversity and ESG performance, and how it affects company performance. This reveals new insights into the strategic significance of diverse leadership in promoting both financial and non-financial results by bridging the gap between corporate governance and sustainability.