Turning ESG Into Inclusive Governance: Workforce Capabilities and Board Gender Diversity in GCC Firms

ABSTRACT The Gulf Cooperation Council (GCC) economies have increasingly integrated sustainability, corporate governance reform and social inclusion into their economic diversification agendas. Drawing on a strategic sustainability perspective, this study examines whether ESG performance contributes to inclusive governance by enhancing board gender diversity in publicly listed GCC firms. Specifically, it investigates workforce quality as a mediating mechanism and assesses the moderating roles of CSR strategy and sustainability‐linked executive compensation incentives. The study uses firm‐level ESG and financial data from London Stock Exchange Group (LSEG) Datastream, together with macroeconomic indicators from the World Bank, covering an unbalanced panel of 1398 firm‐year observations from 281 listed firms over the period 2010–2024. The data are analysed using two‐step system generalised method of moments (System‐GMM) estimation to account for dynamic persistence, unobserved heterogeneity and potential endogeneity while testing the proposed mediation and moderation relationships. The findings reveal that ESG performance is positively associated with both workforce quality and board gender diversity. However, workforce quality fully mediates the ESG‐board gender diversity relationship, indicating that ESG commitments are translated into inclusive board outcomes primarily through stronger human capital practices, employee‐oriented systems and inclusive organisational capabilities. The results further show that CSR strategy strengthens workforce quality but weakens the marginal effect of ESG performance on workforce outcomes, suggesting a substitution effect when CSR practices become highly formalised. Similarly, sustainability‐linked executive incentives directly support board gender diversity but reduce the positive influence of workforce quality on board gender diversity. Overall, the findings suggest that ESG performance alone is insufficient to advance gender‐inclusive governance unless supported by substantive workforce development and well‐aligned sustainability incentives. This study contributes to the CSR, ESG and sustainability governance literature by identifying workforce capabilities as a key organisational pathway linking ESG commitments to board‐level diversity outcomes in emerging GCC markets.