Disaggregated ESG Pillars and Firm Value: The Moderating Role of Board Diversity in European Listed Companies

Abstract Purpose : This study examines the individual effects of the Environmental, Social, and Governance (ESG) pillars on firm value and whether board diversity moderates these relationships, addressing inconsistent findings in the ESG–performance literature. Design/Methodology/Approach : Using a dynamic panel of European listed companies (2014–2023), the study applies a two-step system Generalized Method of Moments (GMM) estimator to control for endogeneity, unobserved heterogeneity, and performance persistence. Board diversity is measured with a composite index derived via principal component analysis (PCA), and interaction terms test moderating effects. Findings : ESG pillars, assessed independently, have no significant direct effect on firm value. However, board diversity significantly moderates the ESG–performance relationship, particularly for the environmental and social pillars. Robustness checks using an alternative Tobin’s Q specification confirm the results. Practical Implications : ESG initiatives do not enhance performance on their own; they require governance structures capable of interpreting and executing sustainability strategies. Firms and policymakers should therefore prioritize board diversity to strengthen ESG integration. Theoretical Implications : The study contributes to stakeholder, agency, and upper echelon theories by showing that the ESG–performance link is contingent on board characteristics, challenging the assumption of universal ESG benefits and supporting a contingency-based perspective. Originality/Value : By disaggregating ESG pillars and modelling board diversity as a moderator within a dynamic panel framework, the study clarifies when and how ESG practices influence firm value, and strengthens methodological robustness through GMM estimation and alternative performance measures.