ESG performance and business risk in Iberian companies: exploring gender diversity moderating effect
Abstract
This study aims to examine the impact of Environmental, Social and Governance (ESG) performance on business risk and investigates how board gender diversity moderates this relationship. Using panel data from 367 listed firms in Portugal and Spain over the period 2013–2023, this study uses a two-step system generalised method of moments to address endogeneity and dynamic effects. The results show that ESG performance and board gender diversity reduce business risk under agency and signalling theory. However, their interaction is associated with higher business risk. This study explains this finding through a governance complexity effect, where the joint implementation of ESG strategies and gender-diverse boards increases coordination costs, intensifies board deliberations and creates uncertainty in short-term execution, which outweighs the individual risk reduction benefits. This study contributes to the literature in three main areas. First, it jointly examines ESG performance and board gender diversity rather than treating them as independent mechanisms. Second, it models gender diversity as a moderating factor, thereby uncovering non-linear governance effects. Third, it provides novel evidence from the Iberian context, a setting where ESG and diversity are strongly shaped by regulatory pressures. By identifying a governance complexity effect, the study shows that governance mechanisms are not purely complementary and may generate short-term trade-offs in firms’ risk profiles.