Does Board Diversity Drive Sustainability? Evidence from UK-Listed Companies

Abstract

The board diversity is a vital factor influencing corporate sustainability by incorporating varied perspectives and expertise into environmental, social, and governance (ESG) practices. This study examines the impact of board diversity—gender, age, educational background, and nationality—on sustainability performance in UK-listed companies. Grounded in Stakeholder Theory, Resource Dependence Theory, Critical Mass Theory, and Institutional Theory, and using quantile regression, this research explores these relationships across sensitive and non-sensitive industries over a 20-year period (2002–2021) using data from 1814 companies. The sample is segmented into high-, medium-, and low-sustainability companies to assess the heterogeneous effects of diversity. Findings reveal industry-specific patterns: In sensitive industries, gender diversity negatively affects ESG scores in low- and medium-sustainability companies, while nationality diversity consistently improves ESG outcomes across all levels. In non-sensitive industries, age diversity enhances ESG scores in medium- and high-sustainability companies, whereas educational diversity shows mixed effects—negative in medium and positive in high-sustainability companies. Nationality diversity also positively impacts ESG outcomes in medium-sustainability companies. This research adds to the literature by looking at how board diversity impacts sustainability performance across industries and sustainability levels by combining a multi-theoretical approach and applying quantile regression, as well as practical guidance for companies looking to improve board diversity for better sustainability performance.

1. Introduction

Board diversity is an important factor influencing corporate behavior, especially in sustainability-related areas. The UK has been among the pioneers on issues of sustainability and board diversity through its regulatory framework. The UK’s stringent legislative environment, which includes the UK Corporate Governance Code, the Companies Act of 2006, and the Taskforce on Climate-related Financial Disclosures (TCFDs), requires full ESG disclosures, making it an appropriate backdrop for this study.

The Companies Act of 2006 marked the beginning of experimentation with narrative and non-financial reporting in the UK. In 2008, listed companies were required to publish quantifiable data on energy use and carbon dioxide emissions in their Directors’ Reports. Along with the UK’s ongoing narrative reporting initiatives, the European Union (EU) implemented the Non-Financial Reporting Directive (NFRD) in October 2014. This NFRD requires big corporations to provide environmental and social information in their annual reports. The non-financial information must include, at the very least, information on environmental, social, and employee issues, respect for human rights, anti-corruption and bribery initiatives, policies implemented, risks associated with these issues, and applicable key performance indicators. Companies that do not pursue policies addressing one or more of these issues must explain why. Furthermore, listed companies must describe their strategy and business plan, as well as the gender distribution of directors, managers, and workers. The most recent update to the Companies Act requires UK-listed companies, financial companies, and high-turnover companies with more than 500 employees and a turnover of more than GBP 500 million to make disclosures in accordance with the TCFD recommendations. This includes having governance arrangements for climate-related risk and opportunity assessment and management [1]. Since April 2022, all large and premium-listed companies have had to disclose how they manage climate-related risks in accordance with the TCFD. Over 90% of the companies in the FTSE 100 have moved to ESG reporting, a very high level of transparency and sustainability [2].

In this context, effective corporate governance practices assume a crucial role, enabling management to monitor and control company resource utilization. These practices not only motivate management to disclose relevant information to investors but also foster a positive perception of firm performance, anticipating higher potential cash flows and positively influencing the firm’s share price [3]. Despite the associated benefits, some argue that the costs of good corporate governance practices may be high, potentially impacting firm profitability [4].

In terms of board diversity, the UK Corporate Governance Code encourages companies to have a diverse range of education, gender, age, and nationality on board, pointing out the advantages of diversity in the corporation. Furthering this requirement, the Financial Conduct Authority (FCA) unveiled new rules in 2022 that companies have to meet diversity targets, including female representation of at least 40 percent on the board and a woman in at least one top management position. Boards are also expected to include at least one member from an ethnic minority background [2]. These changes have ensured a significant climb in the figures of female representation on the FTSE 350 boards, even to 40% by the end of 2025 [5].

The board of directors plays a critical role in monitoring top management and ensuring the reliability of financial reporting. The board diversity dimensions discussed in this paper include gender, age, education, and nationality diversity. The connection between board diversity and sustainability is based on the understanding that diverse perspectives foster innovation, resilience, and more comprehensive decision-making [6]. The unique skills, experience, and diverse knowledge that board members possess can improve the quality of information the board needs for decision-making [7] and improve the quality of sustainability reporting [8]. Also, an increase in the quality of the sustainability reporting increases the company’s market value [9], contributing to improved performance and reputation [10,11].

Several studies, such as [12,13,14,15,16], have found a relationship between corporate governance practices and environmental and social disclosure. For example, the EU has developed a variety of programs, such as the 2020 diversity platform, to show the value of diversity to companies. The United Nations requires board diversity as part of the UN Global Compact. Despite UK-listed companies’ substantial concerns about these challenges, the relationship between board structure and listed companies’ sustainability performance has not been well examined [17,18].

Therefore, this issue has attracted considerable attention among companies in the UK, since companies are mindful of the influence of board diversity on sustainability initiatives (e.g., gender, age, nationality, and educational background as main elements). As a result, further research is needed to assess the effectiveness of board diversity in implementing a company’s sustainability practices and its benefits to the environmental, social, and governance performance. Consequently, the main goal of this study is to examine the impact of board diversity on the sustainability performance of UK-listed companies, dividing the sample into sensitive and non-sensitive industries. Sensitive industries incorporate basic materials, energy, industrials, utilities, consumer discretionary, consumer staples, financials, and telecommunications industries. However, non-sensitive industries incorporate real estate, technology, and health care industries [19], and splitting each industry into different quantiles based on the level of sustainability, an area that has received little attention from prior studies. This study intends to give a foundation for the company’s board of directors to make decisions on sustainability reporting activities. The key issue driving our study is how board diversity affects the sustainability of listed companies in the United Kingdom.

The rest of the paper is structured as follows: Section 2 discusses the theoretical background and the hypotheses development, while Section 3 goes into the data methodology covering sample, data collecting, and variable measurement. Section 4 reports the empirical analysis results, and Section 5 concludes the article.

2. Theoretical Background and Hypotheses Development

2.1. Theoretical Background

Academics have tried to examine the link between board diversity and sustainability performance using multiple theories. [20] performed a systematic review of the literature concerning board diversity and identified two fundamental theoretical bases. The first category incorporates economic and organizational management theories that view the strategic value of board diversity in terms of improved decision-making, resource acquisition, or organizational legitimacy. The second category consists of sociological and psychological theories that emphasize the strategic benefits of diverse boards, such as improved decision-making, resource acquisition, and organizational legitimacy. The second group includes sociological and psychological theories that shed light on how heterogeneous boards operate in practice, focusing on the dynamics of interaction and collaboration among board members. The intricate and dynamic nature of the link between board diversity and sustainable performance involves the use of multiple theoretical frameworks. As a result, this study uses Stakeholder Theory, Resource Dependence Theory, and Institutional Theory from the first category to assess the strategic effects of board diversity on sustainable performance. Furthermore, Social Categorization Theory and Critical Mass Theory from the second category are used to determine if the presence of diverse directors encourages synergy or creates problems in reaching sustainability goals. This integrated approach helps in giving a full knowledge of how board diversity affects sustainability results on several levels.

According to Stakeholder Theory, diverse boards play an essential role in exhibiting environmentally responsible behavior by improving the disclosure of value-relevant information to a wide range of stakeholders. Furthermore, having a diverse board increases the board’s resources, strengthens its capacity to identify strategic opportunities, develops successful plans, and improves overall firm performance [21].

With the increased participation of women in business and society, multiple stakeholders advocate for the function of female directors [22]. Critical Mass Theory highlights the importance of a certain proportion of women on boards to elicit material changes in decision-making and improvements in ESG performance. For instance, studies by [23,24,25,26,27] evidence the positive relationship between gender-balanced boards and ESG, which occurs only after reaching a threshold of women on the board.

Additionally, from a Stakeholder Theory perspective, corporate sustainability has been related to age diversity. For instance, ref. [28] suggests that older directors with long experience and solid values are likely to support the firm’s ecological missions. In the same way, ref. [22] proposes that in a new generational context, directors change their behavior with age, as they will be more sensitive to societal welfare and more willing to contribute to it. Another study supported this relationship in France, where the older members of the board seem to be more concerned about existing environmental problems [29]. Furthermore, ref. [30] reported a curvilinear relationship between board age and sustainability performance, with the emphasis that directors in their mid-50s are more oriented toward environmental stakeholders.

In the context of Resource Dependence Theory, the educational background of shareholders is potentially important in estimating the level of voluntary disclosure of information in the annual reports. This implies that directors with more education would be more innovative and be more comfortable with uncertainty, which would lead to better accountability and disclosure in the company [31]. In addition, it states that the education and competence of the board members are important assets that can improve the firm’s sustainability performance, as highly educated directors are able to have skills concerning CSR such as strategic planning [32].

With the aim of increasing the disclosures related to sustainability in adherence to the Resource Dependence Theory, ref. [33] stress the importance of the foreign board members in the context of diverse thoughts and opinions. Furthermore, ref. [34] shows that there is a significant positive relationship between the national diversity of its board and the carbon emissions reduction and also the CSR-related disclosures. In addition, hiring directors of different nationalities is considered a beneficial resource for the firm in that it reduces information asymmetry, promotes competitiveness, and accelerates CSR disclosure [35]. Consequently, international exposure, skills, knowledge, and experience are acquired by these directors, facilitating better strategic decision-making as well as CSR reporting.

Social Categorization Theory and the Similarity/Attraction Paradigm advocate a detrimental effect of diversity on group performance due to negative attitudes toward dissimilar individuals and infrequent communication among members of a diverse team [36]. Board members can divide themselves based on gender, age, nationality, and/or educational levels/background, resulting in less collaboration and negatively impacting the group decision-making process regarding sustainability initiatives [37]. In other words, it can be more challenging for board members with different educational backgrounds to find common ground and collaborate effectively. In this regard, ref. [38] concludes that ethnic diversity among public managers does not enhance organizational performance; in fact, greater ethnic diversity among directors or employees can lead to decreased organizational performance. Based on a study involving Nordic countries (Denmark, Sweden, Finland, Norway, and Germany), ref. [39] reveal a negative association between the proportion of non-national board members and financial performance, as measured by return on assets (ROA).

The Institutional Theory clarifies how companies are affected by social potential, norms, and regulatory burdens. It suggests that to improve the companies’ legitimacy, they may select to apply certain governance structures and sustainability practices. Board diversity and sustainability performance pillars are supported by this theory, as they allow companies to meet regulatory and societal expectations, therefore enhancing legitimacy and trustworthiness. In recent decades, the Institutional Theory has progressed from determinant to interactive arguments [40]. In the earlier determinant, institutional forces (norms, rules, and frameworks) can improve diversity in boards. In a society guarding values, such as gender equality, companies may comply with the structure of values and societal constructions [41].

2.2. Hypotheses Development

2.2.1. Gender Diversity and ESG

Board gender diversity affects firm performance, particularly ESG performance, and has become an important argument in academic research, prompting its’ impact on decision-making and group dynamics, enhancing firm image [42,43], sustainable development goals disclosure [44], and overall firm performance [45,46]. Female leaders usually enjoy the qualities of being polite and being able to try looking at someone’s perspective. This consequently makes the group’s dynamics better as well as increases the chance of coming to a consensus during board meetings [42,47].

Due to ethical issues and the economy of significant impact, sensitive industries such as energy, chemicals, utilities, and mining do obtain a lot of public focus. Because of the nature of goods produced and the potential damage to the environment, these sectors receive tighter regulatory oversight [48,49]. Studies have documented higher levels of social and financial disclosures by companies in these sectors, but more challenges related to lower financial performance and higher capital costs are also experienced [49]. This background outlines the need for a range of quite diverse development strategies among which gender diversity should be considered. According to the Stakeholder Theory, this implies that companies in sensitive industries will disclose more information to shareholders. Additionally, this theory expects that varied boards are essential for enhancing information disclosure to a variety of stakeholders. Similar to this, the Critical Mass Theory argues that having a balanced number of female directors—three or more, for example—is associated with better firm performance [23,50] because it facilitates better decision-making and improves overall ESG performance [51,52].

Positive links have been found between board gender diversity and ESG performance, including environmental [53], social [13], and governance dimensions [42,54,55,56].

On the other hand, some studies suggest that there is a negative relationship between gender diversity and ESG performance, attributing this to different opinions and potentially slower decision-making processes [57,58]. Conflicts within diverse boards are also considered a potential barrier to decision-making [42,59]. However, several studies report no significant relationship between board gender diversity and ESG performance [60,61].

The hypotheses to be tested based on these discussions are as follows:

H1a. 

Board gender diversity is positively associated with ESG performance in the sensitive industries.

H1b. 

Board gender diversity is positively associated with ESG performance in the non-sensitive industries.

2.2.2. Age Diversity and ESG

The economic transition in countries like the UK provides opportunities for implementing greater ESG investments. Board age diversity could play a critical role in leveraging these opportunities [62], as it brings together diverse generational perspectives. This mix of experience and innovation might enable companies, particularly in sensitive industries, to adopt forward-looking ESG strategies while maintaining compliance with regulatory expectations and societal demands [63].

According to the Stakeholder Theory, the board may effectively respond to the diverse interests and expectations of various stakeholders by addressing both classic and new techniques with the participation of both older and younger directors. Older directors may be resistant to innovation and prefer to maintain using the traditional way, and they are limited in information processing because of the reduced energy levels [21]. Nevertheless, they also bring more expertise, extensive networks, and social capital to the board. In contrast, younger directors are believed to be more receptive to new ideas, more creative, and more likely to seek alternatives to the status quo. This mindset towards creativity may result in higher growth of companies with younger managers [64]. Likewise, the Resource Dependency Theory suggests that the demographic characteristics of the board of directors shape strategic decisions. According to this theory, the diverse resources and generational insights that come with age diversity could enhance the board’s ability to secure critical resources and enrich the decision-making processes to yield better sustainability outcomes.

As a result, some previous research argues that age diversity improves the effectiveness of strategic decision-making processes [21,65] to meet the wider range of stakeholder needs and affect sustainability performance [22]. Ref. [66] found that age diversity has a positive effect on social performance in the European banking sector. In addition, ref. [67] emphasizes the importance of a balanced age composition in senior management for long-term sustainability.

On the other hand, ref. [25,68,69] reported that age diversity has no significant effect on sustainability metrics in different contexts. However, ref. [70] suggests that age diversity has a negative effect on sustainability reporting.

The hypotheses to be tested based on these discussions are as follows:

H2a. 

Board age diversity is positively associated with ESG performance in sensitive industries.

H2b. 

Board age diversity is positively associated with ESG performance in non-sensitive industries.

2.2.3. Education Diversity and ESG

Diversity in education among a firm’s board is seen as one of the essential factors in the process of strategic decision-making, especially in the context of sustainability. It has been said that educational diversity can spark debates around corporate strategies, more so in complicated contexts where there are conflicting viewpoints [66]. Educational diversity would also improve the directors’ competence, information processing, and even the ability to accept new ideas and abstractions [21]. There is a widespread notion that boards possessing different qualifications are more likely to tackle strategic issues effectively in areas such as CSR disclosure [71]. Environmentally sustainable companies with diverse educational boards and backgrounds are more likely to practice eco-friendly actions, especially in developing countries [72].

The mixed evidence on ESG performance across sensitive and non-sensitive industries underscores the potential role of educational diversity in addressing these challenges. For example, sensitive industries often face ethical controversies and significant regulatory scrutiny, which may demand boards equipped with diverse educational backgrounds to develop innovative ESG strategies. Educational diversity on board could help sensitive industry companies improve their ESG investments. This is aligned with the Stakeholder Theory, where enhanced disclosures and transparency are significant in meeting the needs of stakeholders, generating trust, and ensuring that companies fulfill their societal obligations that fortify relationships with both internal and external stakeholders and enhance financial performance [73].

Managers with higher education and extensive training in CSR and strategic management bring capabilities that would improve cognitive foundations, open-mindedness, greater information processing capacity, and a greater tolerance for change [74,75], which in turn bolster a firm’s sustainable performance. Conversely, directors with lower levels of education may bring practical workplace experiences that complement higher-level education.

As a result, board members’ educational diversity has a beneficial effect on CSR level [37] and effectively supports sustainable strategic decision-making [76]. On the other hand, contradictory results exist. For example, a negative correlation between educational diversity and the quality of CSR activities was reported by [77].

The hypotheses to be tested based on these discussions are as follows:

H3a. 

Board educational diversity is positively associated with ESG performance in the sensitive industries.

H3b. 

Board educational diversity is positively associated with ESG performance in the non-sensitive industries.

2.2.4. Nationality Diversity and ESG

Board nationality diversity has emerged as a prominent aspect of board diversity, attracting attention for its potential to bring unique perspectives and expertise to corporate decision-making. International directors are identified as assets since they hold an international viewpoint as well as know-how, believe in transparency and responsibility [77,78], help in appropriate decision-making [79], and, in the long term, improve corporate performance.

Higher board nationality diversity is linked to increased reporting on Black empowerment in companies [80]. Diverse nationalities on board positively associate with reporting human rights violations in Europe, highlighting the commitment to transparency and international experience [72]. Positive relationships are reported between nationality diversity and sustainability disclosure, reputation improvement, and sustainability performance [33,34,35].

According to the Institutional Theory, firms adopt nationality diversity to align with international best practices, regulatory expectations, and societal norms, helping them gain legitimacy and improve global stakeholder relations. This alignment with global norms and expectations is supported by the Stakeholder Theory, as it demonstrates the company’s commitment to meet the needs and interests of a broad range of stakeholders.

On the other hand, the negative association between cultural diversity and firm performance has been reported by some of the previous literature that referred to the possibility of cultural conflicts cancelling out the advantages of nationality diversity [81].

Cultural heterogeneity may, however, present its own disadvantages in respect of coordination, communication, and even misunderstandings, which would lower intragroup trust [82,83]. It has also been reported that cultural diversity has negative effects on financial performance, which means cultural friction is likely to override the benefits [81]. Other studies do point to the negative relation between the nationality diversity of the board and the extent of the CSR reports, which is understood as the response to the aim to satisfy shareholders rather than propagate CSR [71,84].

Non-sensitive industries, which do not have considerable social or environmental impacts, attract lower levels of stakeholder (regulatory) scrutiny with a relatively low likelihood of ethical controversy. This calls for more attention to the type of industry, particularly in the UK, where economic transition may provide vast opportunities in implementing greater ESG investments, which in turn could enable them to positively affect financial performance [73]. Some previous studies reported that companies from industries without sensitivity disclose fewer Global Reporting Initiative (GRI) indicators than those forms belonging to sensitive industries [85,86,87]. Nationality diversity can be a key element in the social aspect of ESG, specifically under GRI’s disclosures related to workforce diversity.

At the same time, considering the increased attention to the currently pressing issue—climate change—studies regarding the board’s nationality diversity and carbon disclosure are rather few and far between and have obtained contradictory results.

The hypotheses to be tested based on these discussions are as follows:

H4a. 

Nationality diversity on board is positively associated with ESG performance in the sensitive industries.

H4b. 

Nationality diversity on board is positively associated with ESG performance in the non-sensitive industries.

Based on the previous discussion, the conceptual framework can be as follows in Figure 1:

3. Materials and Methods

3.1. Population and Samples

We chose the sample of listed companies in the UK because they have established regulations and rules in sustainability reporting practices [2,88,89]. After that, we used specific criteria to include companies with data on board diversity, specifically regarding gender, age, nationality, and education. These criteria also disclosed sustainability-related data, such as ESG reports and indices. This method allowed us to include companies that are at least somewhat involved in sustainability initiatives. We recognize that some companies might have a limited understanding of sustainability or not fully adopt the best practices in this area. Such differences could change the findings, especially as we used quantile regression to categorize the sample into low, medium, and high sustainability groups. Nevertheless, we believe that the dataset effectively represents companies with sustainability data, indicating their involvement in sustainability initiatives. As a result, we expect the findings to retain a high level of validity. The purpose of this study is to examine the impact of board diversity on the sustainability performance of UK companies listed on the London Stock Exchange (LSE) by dividing the sample into sensitive and non-sensitive industries and further investigating how diverse board structure benefits companies with different levels of sustainability in both sensitive and non-sensitive industries. This analysis excludes financial companies because they have different characteristics than non-financial companies, such as credit, market, and liquidity risks.

Hence, there are 1814 non-financial companies in the UK, with observations ranging from 2002 to 2021, making a total of 36,280.

3.2. Data Collection

For this study, the data on board structure were collected from the BoardEx database, while the remaining firm-specific determinants and control variables were collected using data from the Refinitiv DataStream database. The BoardEx database was used for this study because it is one of the most extensively utilized and reliable sources of board structure and diversity data in academic research. Also, Refinitiv Eikon is an advanced financial database and analytics platform used to access historical and current financial data, market insights, and a suite of analytical tools. It offers vast and comprehensive data related to the international market. For all variables, the data runs for a period of 20 years, from 2002 to 2021.

3.3. Measurement of Variables

Table 1. Measurement of variables.

Panel A: Independent Variables
Board Structure Variables
Variables	Definition	Measurement	Reference
X1	Female on Board	Percentage of females on board	[11,29,90]
X2	Nationality on Board	Proportion of all directors from different countries	[11,90]
X3	Board Age	Average age in years of all directors	[91]
X4	Board Education	Average number of education qualifications earned by all directors	[11]
Control Variables: Other Firm Specific Variables
X5	Firm Size	Natural log of total assets	[11,92]
X6	Liquidity	Current assets over current liabilities	[91]
X7	Leverage	Total debt/total assets	[11,92]
X8	Profitability	Net income/total assets	[29]
X9	Growth	Market value of equity to book value of equity	[91]
Panel B: Dependent Variables
Sustainability Variables
ESG	ESG Index	EGX index derived from the Datastream database	[93,94]
Env	Environmental Index	Environmental pillar score derived from the Datastream database	[93,94]
Soc	Social Index	Social pillar score derived from the Datastream database	[93,94]
Gov	Governance Index	Governmental pillar score derived from the Datastream database	[93,94]

summarizes the variables measured in this study. Panel (A) comprises the results of the independent variables relating to board structure and other firm-specific variables. Panel (B) denotes the dependent variables, which are the ESG scores.

3.4. Research Model

Linear regression can provide only an average impact of the independent variables on the dependent variable, whereas it often conceals crucial details because such an influence could vary very much across the distribution of the explained variable itself. For this reason, our study employs quantile regression since it gives more insights by offering a more nuanced understanding by examining how the relationship between the explanatory variables and the regressors changes across different quantiles of the explained variable. This flexibility allows for a more comprehensive analysis, revealing how the impact of a given explanatory variable differs for companies with low, high, and median performance. More precisely, the model has the following form:

Model 1:

$${\mathbf{ESG}}_{\mathbf{it}}={\mathit{\beta }}_0 +{\mathit{\beta }}_1 {\mathbf{X}}_{1\mathbf{it}}+{\mathit{\beta }}_2 {\mathbf{X}}_{2\mathrm{it}}+{\mathit{\beta }}_3 {\mathbf{X}}_{3\mathrm{it}}+{\mathit{\beta }}_4 {\mathbf{X}}_{4\mathrm{it}}+{\mathit{\beta }}_5 {\mathbf{X}}_{5\mathrm{it}}+{\mathit{\beta }}_6 {\mathbf{X}}_{6\mathrm{it}} +{\mathit{\beta }}_7 {\mathbf{X}}_{7\mathrm{it}}+{\mathit{\beta }}_8 {\mathbf{X}}_{8\mathrm{it}}+{\mathit{\beta }}_9 {\mathbf{X}}_{9\mathrm{it}}+{\mathit{\epsilon }}_{\mathbf{I}}$$

(1)

Model 2:

$${\mathrm{Env}}_{\mathrm{it}}={\mathit{\beta }}_0 +{\mathit{\beta }}_1 {\mathbf{X}}_{1\mathrm{it}}+{\mathit{\beta }}_2 {\mathbf{X}}_{2\mathrm{it}}+{\mathit{\beta }}_3 {\mathbf{X}}_{3\mathrm{it}}+{\mathit{\beta }}_4 {\mathbf{X}}_{4\mathrm{it}}+{\mathit{\beta }}_5 {\mathbf{X}}_{5\mathrm{it}}+{\mathit{\beta }}_6 {\mathbf{X}}_{6\mathrm{it}} +{\mathit{\beta }}_7 {\mathbf{X}}_{7\mathrm{it}}+{\mathit{\beta }}_8 {\mathbf{X}}_{8\mathrm{it}}+{\mathit{\beta }}_9 {\mathbf{X}}_{9\mathrm{it}}+{\mathit{\epsilon }}_{\mathrm{it}}$$

(2)

Model 3:

$${\mathrm{Soc}}_{\mathrm{it}}={\mathit{\beta }}_0 +{\mathit{\beta }}_1 {\mathbf{X}}_{1\mathrm{it}}+{\mathit{\beta }}_2 {\mathbf{X}}_{2\mathrm{it}}+{\mathit{\beta }}_3 {\mathbf{X}}_{3\mathrm{it}}+{\mathit{\beta }}_4 {\mathbf{X}}_{4\mathrm{it}}+{\mathit{\beta }}_5 {\mathbf{X}}_{5\mathrm{it}}+{\mathit{\beta }}_6 {\mathbf{X}}_{6\mathrm{it}} +{\mathit{\beta }}_7 {\mathbf{X}}_{7\mathrm{it}}+{\mathit{\beta }}_8 {\mathbf{X}}_{8\mathrm{it}}+{\mathit{\beta }}_9 {\mathbf{X}}_{9\mathrm{it}}+{\mathit{\epsilon }}_{\mathrm{it}}$$

(3)

Model 4:

$${\mathrm{Gov}}_{\mathrm{it}}={\mathit{\beta }}_0 +{\mathit{\beta }}_1 {\mathbf{X}}_{1\mathrm{it}}+{\mathit{\beta }}_2 {\mathbf{X}}_{2\mathrm{it}}+{\mathit{\beta }}_3 {\mathbf{X}}_{3\mathrm{it}}+{\mathit{\beta }}_4 {\mathbf{X}}_{4\mathrm{it}}+{\mathit{\beta }}_5 {\mathbf{X}}_{5\mathrm{it}}+{\mathit{\beta }}_6 {\mathbf{X}}_{6\mathrm{it}} +{\mathit{\beta }}_7 {\mathbf{X}}_{7\mathrm{it}}+{\mathit{\beta }}_8 {\mathbf{X}}_{8\mathrm{it}}+{\mathit{\beta }}_9 {\mathbf{X}}_{9\mathrm{it}}+{\mathit{\epsilon }}_{\mathrm{it}}$$

(4)

where i denotes companies in the sample; t refers to time period; β₀ is the constant; β₁ to β₉ represents the regression coefficients; and $\mathit{\epsilon }$ is a vector of the stochastic error term.

4. Empirical Result and Discussion

4.1. Descriptive Statistics

The descriptive data are shown in

Table 2. Descriptive statistics.

	Mean	Median	Maximum	Minimum	Std. Dev.
Environmental Pillar Score	48.668	52.460	98.890	0.000	28.990
Governance Pillar Score	55.822	57.740	99.440	0.450	22.355
Social Pillar Score	56.209	57.900	98.470	0.880	23.433
ESG Score	54.249	56.390	95.910	1.800	20.744
Female on Board	11.549	10.000	62.500	0.000	9.178
Nationality	0.308	0.200	1.600	0.000	0.349
Age	57.825	57.750	80.050	36.500	4.404
Education	2.009	2.000	7.700	0.000	0.615
Firm Size	16.284	16.173	24.542	11.538	1.607
Liquidity	1.651	1.344	56.975	0.000	1.402
Leverage	0.268	0.253	3.916	0.000	0.185
Profitability	0.059	0.052	1.684	−2.402	0.097
Growth	2.850	2.500	1046.940	−2223.350	39.484

. According to the table, the average age of board members is 58 years old. All directors have an average of two educational credentials. Furthermore, the average percentage of female board members is 11, with one foreign board member. On the other hand, the average environmental score is 48.6, the average score for governance is 55.8, and the social score is 56.2.

4.2. Correlation Analysis

Table 3. Correlation analysis.

	Female on Board	Nationality	Age	Education	Firm Size	Liquidity	Leverage	Profitability	Growth
Female on board	1.000
Nationality	0.124	1.000
Age	−0.002	−0.110	1.000
Education	0.021	0.126	0.129	1.000
Firm size	0.027	0.077	0.130	0.162	1.000
Liquidity	0.031	0.012	−0.037	−0.035	−0.151	1.000
Leverage	0.003	−0.003	0.018	0.012	0.140	−0.159	1.000
Profitability	−0.005	0.025	0.003	0.019	0.002	0.016	−0.067	1.000
Growth	0.000	−0.005	0.006	0.007	0.003	0.007	−0.052	0.008	1.000

presents the correlation matrix between the independent variables. The table shows that there is no multicollinearity between the independent variables, where the highest correlation is between the firm size and board education, which indicates 0.162.

4.3. Equality Tests

Table 4. Equality tests.

	Mean Equality Test		Median Equality Test		Variance Equality Test
	Student-t Statistic	p-Value	Wilcoxon/ Mann–Whitney Statistic	p-Value	Siegel–Tukey Statistic	p-Value
Environmental Pillar Score	101.201	0.000	86.671	0.000	56.746	0.000
Governance Pillar Score	151.716	0.000	96.305	0.000	75.730	0.000
Social Pillar Score	146.115	0.000	96.302	0.000	75.720	0.000
ESG Score	158.315	0.000	96.30455	0.000	75.730	0.000

presents the equality test made to test whether there is a difference in the average, median, and dispersion scores for environment, governance, social, and ESG scores between sensitive and non-sensitive industries.

Table 4 shows the Student t-statistic, on average score, environment, governance, social, and ESG scores are significantly different between sensitive and non-sensitive industries. Additionally, based on the Wilcoxon/Mann–Whitney statistic, the median scores of environmental, governance, social, and ESG scores are significantly different across sensitive and non-sensitive industries. Also, the Siegel–Tukey statistic is significant, showing that dispersion concerning environment, governance, social, and ESG scores differs between sensitive and non-sensitive industries. So, we can also deduce that there is heterogeneity regarding environmental, social, and governance factors for the ESG score across the various industries.

4.4. Symmetric Quantile Test

Table 5. Systematic quantile test.

Panel A: Full Sample:
	Environmental Pillar Score	Governance Pillar Score	Social Pillar Score	ESG Score
Wald Test	665.525	366.782	460.968	342.938
p-Value	0.000	0.000	0.000	0.000
Panel B: Non-Sensitive Industries
	Environmental Pillar Score	Governance Pillar Score	Social Pillar Score	ESG Score
Wald Test	139.976	64.225	152.597	96.942
p-Value	0.000	0.000	0.000	0.000
Panel C: Sensitive Industries
	Environmental Pillar Score	Governance Pillar Score	Social Pillar Score	ESG Score
Wald Test	557.824	237.920	244.696	355.597
p-Value	0.000	0.000	0.000	0.000

shows the systematic quantile test, which assesses whether the effect of the explanatory variables is symmetric across quantiles. Panel (A) shows the full sample, Panel (B) focuses on non-sensitive industries, and Panel (C) focuses on sensitive industries. The table indicates a significant rejection of symmetry, testifying that different quantiles experience different effects related to explanatory variables for both the sensitive, non-sensitive, and full samples.

4.5. Quantile Result

Table 6. Sensitive industries.

	Quantile	Environmental Pillar Score	Governance Pillar Score	Social Pillar Score	ESG Score
Constant	0.1	−70.1735 ***	−27.0479 ***	−33.3772 ***	−35.3939 ***
	0.5	−89.1358 ***	−21.7872 ***	−49.3119 ***	−43.0952 ***
	0.9	2.8805	30.3636 ***	17.4175 ***	−1.2243
Female on board	0.1	−0.1235 ***	−0.1035 **	−0.0754 **	−0.1030 ***
	0.5	−0.0264	−0.0645 *	−0.0667 **	−0.0578 **
	0.9	−0.0316	−0.0081	0.0719 ***	0.0254
Nationality	0.1	1.5581 *	1.4013	−0.1166	2.9081 ***
	0.5	3.9503 ***	2.9463 ***	1.2826	1.7845 **
	0.9	2.0733 ***	1.9579 ***	0.6965	1.8028 ***
Age	0.1	−0.0448	0.1791 *	0.0147	0.118
	0.5	0.0932	0.1019	0.0712	−0.0274
	0.9	0.0486	0.0381	0.0521	0.0247
Education	0.1	−0.9482 **	1.5838 **	0.8188	0.2069
	0.5	1.3568 *	0.4623	0.2057	0.4829
	0.9	−0.9076 ***	−0.8288 *	0.0031	−0.0363
Firm Size	0.1	5.1769 ***	2.4668 ***	3.6816 ***	3.6264 ***
	0.5	8.1386 ***	4.4299 ***	6.2863 ***	6.1464 ***
	0.9	4.8223 ***	3.1530 ***	3.8806 ***	4.6723 ***
Liquidity	0.1	−0.8082 **	0.39451	−0.9268 ***	−1.2293 ***
	0.5	−2.7788 ***	−0.7037 ***	−1.9132 ***	−2.0172 ***
	0.9	−1.7094 ***	−0.3829 ***	−1.2731 ***	−0.9889 ***
Leverage	0.1	−0.4749	0.5822	−6.4903 ***	−7.5215 ***
	0.5	3.9432	2.3064	4.5879 *	5.0791 ***
	0.9	0.7562	2.4897	2.2867 ***	3.0508 **
Profitability	0.1	16.4088 ***	15.3423 ***	11.0197 **	11.4509 **
	0.5	35.9467 ***	20.3189 ***	26.7695 ***	24.9145 ***
	0.9	14.0499 ***	6.4518	8.3006 ***	13.1658 ***
Growth	0.1	−0.0085	−0.0106 ***	−0.0140 *	−0.0153 ***
	0.5	−0.0036 ***	−0.0133 ***	−0.0028	−0.0036
	0.9	−0.002	−0.0110 ***	−0.0050 **	−0.0108 ***

*, **, and *** represent significance at 0.1, 0.05, and 0.01 levels, respectively.

shows the quantile result of the board diversity on the sustainability in the sensitive industries across different quantiles: companies with low sustainability were positioned at the 0.1 quantile, medium sustainability at the 0.5 quantile, and high sustainability at the 0.9 quantile.

For female on board, in low- and medium-sustainability companies, female board members had a significant negative effect on the ESG pillars. In contrast, in high-sustainability companies, the female on board significantly and positively affects the social pillar.

For foreign directors, the results show that in companies of low sustainability, foreign directors alone do not affect the social and governance pillars by themselves. Though, looking at the overall ESG score, a significant positive relationship is reported. In medium- and high-sustainability companies, foreign directors had a favorable effect on the overall ESG score, governance pillar, and environmental pillar but had no effect on the social pillar. In general, foreign directors enhance the company’s overall ESG score.

For age diversity, the result reflects that age diversity somehow showed no significant impact on the environmental, social, or governance pillars in all companies irrespective of sustainability levels, except for the low-sustainability companies, as the age diversity has a significant positive effect on the governance pillar.

For education diversity, the findings showed that in low-sustainability companies, boards with educational diversity tended to have an unfavorable impact on the environmental pillar while performing well on the governance pillar. On the other hand, in medium-sustainability companies, there was a significant positive effect of educational diversity on the environmental pillar. In high-sustainability companies, educational diversity significantly negatively affected the environmental and governance pillar.

Table 7. Non-sensitive industries.

	Quantile	Environment Pillar Score	Governance Pillar Score	Social Pillar Score	ESG Score
Constant	0.1	−128.4866 ***	−24.1333 *	−70.5512 ***	−70.5669 ***
	0.5	−115.6701 ***	−38.3288 ***	−68.4998 ***	−75.3851 ***
	0.9	−13.2525	5.7624	29.8600 ***	0.7516
Female on board	0.1	0.1438	−0.023	0.3340 ***	0.155
	0.5	−0.2129 **	−0.0443	−0.1438 *	−0.0575
	0.9	0.1370 *	−0.0222	−0.0713	−0.044
Nationality	0.1	−2.5154	−1.286	−4.9573 *	−2.5579
	0.5	1.4246	5.1762 *	4.5339 *	3.7485 *
	0.9	−1.1101	3.9657 **	2.3854 *	0.7051
Age	0.1	0.1125	0.0892	0.6759	0.1045
	0.5	0.3743 **	0.3558 *	0.5742 **	0.6738 ***
	0.9	0.2648	0.2941 ***	0.1669	0.1798 **
Education	0.1	−0.8214	1.6335	−1.7548	−1.6836
	0.5	−1.3372	−0.0042	−2.0486 **	−2.6120 **
	0.9	1.4906	0.916	1.0099	1.5160 **
Firm size	0.1	8.5109 ***	2.6736 ***	4.9813 ***	6.0656 ***
	0.5	9.3284 ***	4.5255 ***	6.3416 ***	6.1547 ***
	0.9	4.7238 ***	3.4110 ***	2.8689 ***	4.0590 ***
Liquidity	0.1	−1.6733 ***	−0.4477	−1.0243 **	−1.6710 ***
	0.5	−2.1026 ***	−0.5426	−2.4805 ***	−1.4456 *
	0.9	−2.1130 ***	−0.2507	−0.7141 **	−0.9927 ***
Leverage	0.1	4.3325	−1.1039	1.1202	2.0797
	0.5	12.1271 **	9.5002 **	4.0895	6.9624
	0.9	3.6595	3.5729	−5.5607	−2.2194
Profitability	0.1	26.2677	−5.0605	34.9674 ***	26.7416 **
	0.5	27.7160 ***	−0.561	31.5193 ***	12.1593 *
	0.9	7.175	−5.2351	7.5955	7.3336
Growth	0.1	0.0262 *	0.008	0.1248 ***	0.1226 ***
	0.5	0.0330 **	−0.0494 **	0.0015	0.0096
	0.9	−0.0546 ***	−0.0635 ***	−0.0654 *	−0.0675 ***

*, **, and *** represent significance at 0.1, 0.05, and 0.01 levels, respectively.

shows the quantile result of the board diversity on the sustainability in the non-sensitive industries across different quantiles.

For female on board, in the low-sustainability companies, the female was found to significantly and positively affect only the social pillar, with no significant effect on environmental or governance pillars being detected. In medium-sustainability companies, female board members significantly and negatively affected both the environmental and social pillars, with no significant effect on the governance pillar. In high-sustainability companies, female board members showed a significant positive effect on only the environmental pillar. Overall, female board members had no significant impact on the overall ESG score across different quantiles in the non-sensitive industries.

For foreign directors, the table reveals that in low-sustainability companies, foreign directors tend to exert a significant negative influence on the social pillar. Still, they do not have any bearing on the environmental and governance pillars. The foreign directors in medium- and high-sustainability companies significantly and positively influenced the governance and social pillars through their experience in international affairs, yet still had no significant effect on the environmental pillar.

For age diversity, the results for low-sustainability companies show that there is no significant influence of age diversity on ESG performance. However, findings for the medium-sustainability companies point out the presence of influential older directors tending to shape in a positive way the environmental, governance, and social pillars. Results indeed show that the governance pillar is significantly and positively influenced by older directors in high-sustainability companies. Overall, both medium- and high-sustainability companies show that age diversity positively affects the overall ESG score, with the effect being more pronounced in medium-sustainability companies than in high-sustainability companies.

For education diversity, the results showed that educational diversity does not affect the overall ESG score for low-sustainability companies. In medium-sustainability companies, it significantly and negatively impacts the social pillar while not being significant in the other two pillars. While in companies at a high sustainability level, diversity in education makes no significant difference for their environmental, social, and governance pillars taken individually; in all, it proves to relate positively to the overall ESG score.

Table 8. Full sample.

	Quantile	Environment Pillar Score	Governance Pillar Score	Social Pillar Score	ESG Score
Constant	0.1	−77.4508 ***	−24.9229 ***	−37.5024 ***	−41.4307 ***
	0.5	−92.8078 ***	−23.8793 ***	−51.1563 ***	−45.3181 ***
	0.9	1.9697	26.8543 ***	17.7726 ***	−1.6329
Female on board	0.1	−0.1052 ***	−0.0923 ***	−0.0446	−0.0939 ***
	0.5	−0.0593	−0.0560 **	−0.0827 ***	−0.0544 *
	0.9	−0.0107	0.0013	0.0485 **	0.0133
Nationality	0.1	0.818	0.3323	−0.447	2.0902 **
	0.5	3.1456 ***	3.5383 ***	1.3633	1.8372 **
	0.9	1.6750 ***	2.0146 ***	1.2146 **	1.7519 ***
Age	0.1	−0.0011	0.1382 *	0.0532	0.1174 *
	0.5	0.1179	0.1437 **	0.1358 **	0.0765
	0.9	0.0678	0.0814	0.1241 **	0.0614
Education	0.1	−0.6324 *	1.4656 **	0.7648	0.2081
	0.5	1.5276 **	0.3266	0.1106	0.2904
	0.9	−0.5098 *	−0.5808	0.3989	0.4012
Firm size	0.1	5.4828 ***	2.4988 ***	3.8038 ***	4.0117 ***
	0.5	8.3049 ***	4.4167 ***	6.2472 ***	5.9701 ***
	0.9	4.7733 ***	3.1593 ***	3.6005 ***	4.5561 ***
Liquidity	0.1	−0.8464 ***	−0.9121 ***	−0.9244 ***	−1.2035 ***
	0.5	−2.6620 ***	−0.7084 ***	−1.9778 ***	−2.0373 ***
	0.9	−1.8654 ***	−0.3659 ***	−1.1318 ***	−0.9923 ***
Leverage	0.1	0.3511	0.7813	−6.5048 ***	−6.2759 ***
	0.5	4.8560 *	3.4196 ***	5.2683 **	5.1860 ***
	0.9	1.1405	3.0938	0.6682	2.4374 ***
Profitability	0.1	16.8322 ***	13.7780 ***	12.5606 ***	15.4105 ***
	0.5	33.6198 ***	16.9616 ***	24.7711 ***	22.8786 ***
	0.9	11.5648 ***	4.1595	9.9073 ***	11.2799 ***
Growth	0.1	−0.0042	−0.0106 ***	−0.0162 **	−0.004
	0.5	−0.0036 ***	−0.0133 ***	0.0017	−0.0014
	0.9	−0.002	−0.0113 ***	−0.0047 **	−0.0108 ***

*, **, and *** represent significance at 0.1, 0.05, and 0.01 levels, respectively.

shows the quantile results for the full sample, including sensitive and non-sensitive industries. The result shows the similar result of the sensitive industries for the effects of female board members, nationality, and education on ESG scores across companies at different levels of sustainability.

However, results vary when it relates to age diversity. There is a significant positive influence of age diversity on governance in companies with low sustainability. In the medium-sustainability companies, age diversity has a significant positive effect on the governance and social pillars with no effect on the environmental pillar. Moreover, in high-sustainability companies, although age diversity tends to have a positive influence on the social pillar, it has an insignificant effect on the environmental and governance pillars.

4.6. Discussion

The results related to the sensitive industries, as shown in Table 6, indicate that for the female on board, in low- and medium-sustainability companies, there was a negative effect on the ESG pillars. This may be due to the fact that female directors may face structural challenges, such as resistant corporate cultures and limited resources, which hinder their ability to drive meaningful ESG changes. Female directors in such environments may lack the support needed to drive ESG improvements, resulting in constrained efforts. Consequently, female board members in low-sustainability companies may unintentionally have a negative effect on ESG pillars due to entrenched practices and a lack of organizational commitment to ESG goals. The results align with findings from studies by [57,58], which may be due to the fact that companies in sensitive industries tend to exhibit higher levels of financial and social disclosure but often face challenges like lower financial performance and higher capital costs [49]. This result can also be explained by the Social Categorization Theory in which board members can divide themselves based on gender, resulting in less collaboration and negatively impacting the group decision-making process regarding sustainability initiatives [37].

In contrast, in high-sustainability companies, the female on board significantly positively affects the social pillar. Since the high-sustainability companies are more aligned with pre-existing ESG frameworks and policies, enabling them to capitalize on the collaborative and ethical leadership styles of female leaders. These leaders are more likely to enhance governance standards and drive social initiatives effectively. This positive influence emphasizes stakeholder engagement, risk management, and long-term strategic goals, which are critical for mature, sustainability-focused companies. These findings suggest that the impact of female board members is contingent on the organizational environment and the level of existing ESG integration. This result aligns with findings from studies by [33,34,35,42,55,56,94] and also aligns with the Critical Mass Theory, which argues that having a balanced number of female directors—three or more, for example—is associated with better firm performance [23,50] because it facilitates better decision-making and improves overall environmental, social, and governance (ESG) performance [51,52].

For foreign directors, in companies with low sustainability, the presence of foreign directors alone does not affect the environment, governance, and social pillars by themselves. Though, looking at the overall ESG score, a positive relationship is revealed, in which the number of foreign directors is proportionate to the overall ESG performance. These areas of strategic decision-making are enhanced by their global expertise and diverse perspectives. This implies that although foreign directors may not have a considerable effect on individual ESG performance elements, the overarching presence of foreign directors improves the overall ESG performance as a result of their fresh perspectives, international know-how, and a deeper understanding of global markets, which can improve strategic decisions and promote innovative ESG initiatives. For example, directors from abroad often strengthen a company’s dedication to transparency and sustainability by ensuring corporate practices align with global standards. This can be seen in how they help improve reporting on issues like human rights and environmental impact.

In medium- and high-sustainability companies, foreign directors had a favorable effect on the overall ESG score and on the governance and environmental pillars, but foreign directors had no effect on the social pillar. In general, foreign directors enhance the company’s overall ESG score. The results align with findings from studies by [33,34,35,42,55,56]. Also, this result aligns with the Institutional Theory in which firms adopt nationality diversity to align with international best practices, regulatory expectations, and societal norms, helping them gain legitimacy and improve global stakeholder relations. This alignment with global norms and expectations is also supported by the Stakeholder Theory, as it demonstrates the company’s commitment to meet the needs and interests of a broad range of stakeholders. On the other hand, their lack of influence on the social pillar may illustrate cultural differences, including varying norms and communication styles, that can result in misunderstandings, difficulties in coordination, and lower levels of trust within the group, which may disrupt effective decision-making. Even so, nationality diversity remains a valuable advantage for enhancing a company’s credibility and public trust. From the perspective of the Institutional Theory, diverse boards are better equipped to meet both regulatory requirements and societal expectations. These barriers can be addressed by implementing cross-cultural training programs or developing standardized communication frameworks to fully harness the benefits of nationality diversity in ESG performance.

For age diversity, the result reflects that age diversity somehow showed no significant impact on the environmental, social, or governance pillars in all companies irrespective of sustainability levels, except in the low-sustainability companies, as age diversity positively affects only the governance pillar. The absence of influence could have occurred because of the complexity of the ESG issues that appear to go beyond age diversity to include knowledge and industry experience that is significant for strategy formulation.

For education diversity, the findings showed that in low-sustainability companies, boards with educational diversity tended to have an unfavorable impact on the environmental pillar due to structural challenges and conflicting priorities while performing well on the governance pillar. Diverse educational backgrounds may improve governance through improved decision-making and responsibility. At the same time, educational diversity may bring different priorities for environmental strategies and create challenges for the integration of sustainability strategies. This result can be explained by the Social Categorization Theory, and the result is consistent with [77]. However, educational diversity positively impacts the governance score under low-sustainability companies.

In the medium-sustainability companies, education diversity has a significant positive impact on the environmental score. A diverse belief system and critiquing of sensitive industries with strong regulatory scrutiny demand boards emanating from different educational backgrounds to provide creative ESG strategies aligning with the Resource Dependency Theory and the findings from studies by [37]. The nature of such education on a board may raise the impact of ESG investment in sensitive industry companies that align with the Stakeholder Theory in satisfying stakeholder expectations and, hence, having a financial upturn [73]. The positive effect of educational diversity on the environmental pillar may be a result of innovative solutions that come from different educational backgrounds. Such diversity does not appear to have a significant impact on the social and governance pillars; thus, they seem to have been more challenged by other factors, such as corporate culture and leadership styles, in delivering performance in these areas.

In high-sustainability companies, educational diversity negatively affected the environmental and governance pillar because diverse educational backgrounds often bring contrasting views on priorities and strategies. For environmental goals, for example, board members with finance or business backgrounds may want to pursue cost-effective environmental goals that would conflict with those who would agree on investing in costly eco-friendly initiatives. Conflicts over the priorities of the board would lead to delays in decision-making and water down administrative functions. Similarly, in governance, differences in educational backgrounds would also bring very different ideas on risk management, ethics, and compliance within the board, which may inadvertently weaken the consistency and effectiveness of governance within the companies. These inconsistencies would detract from the unified strategic focus that high-sustainability companies strive to achieve in their environmental and governance functions.

Regarding the non-sensitive industry, as shown in Table 7, female on board of low-sustainability companies were found to positively affect the social pillar, since they usually have more inclusive and community-oriented values in improving the welfare of employees, as well as through initiatives in diversity and social responsibility. No effect on environmental and governance pillars was detected.

In the medium-sustainability companies, female board members significantly and negatively affected both the environmental and social pillars, probably due to a stronger focus on short-term financial goals over sustainability, thereby limiting their influence on these areas. As the non-sensitive industries do not have considerable social or environmental impacts, they attract lower levels of stakeholder (regulatory) scrutiny with a relatively low likelihood of ethical controversy. Some previous studies reported that companies from industries without sensitivity disclose fewer GRI indicators than those forms belonging to sensitive industries [85,86,87].

In high-sustainability companies, female board members showed a positive effect on the environmental pillar through the advocacy of stronger practices, which is congruent with long-term sustainability goals but did not show a significant effect on the social or governance pillars. Overall, female board members had no significant impact on the overall ESG score across non-sensitive industries. The results of this study are consistent with the Critical Mass Theory. The benefits of critical mass are determined not just by numerical representation but also by the larger organizational environment, such as corporate culture, leadership dynamics, and sustainability maturity. This study emphasizes the importance of fostering inclusive and supportive board dynamics, as well as meeting numerical thresholds, to maximize the impact of gender diversity on sustainability performance by contextualizing Critical Mass Theory within the evolution of gender diversity targets in the UK.

For foreign directors, the table reveals that in low-sustainability companies, foreign directors tend to exert a negative influence on the social pillar; this might be due to unfamiliarity with the issues concerning the host economy. Still, they do not have any bearing on the environmental and governance pillars.

The foreign directors in medium- and high-sustainability companies, though, influenced the governance and social pillars through their experience in international affairs, though still having no significant effect on the environmental pillar. The results align with findings from studies by [33,34,35,42,55,56]. The result aligns with the Institutional Theory.

For age diversity, the results for low-sustainability companies show that there is no significant influence of age diversity on ESG performance. This may be the case, as older directors may not be in a position to put in place support and mechanisms that force them to facilitate meaningful ESG improvements. However, findings for the medium-sustainability companies point out the presence of influential older directors tending to shape in a positive way the environmental, governance, and social pillars. In such companies, which have more developed but still developing ESG practices, there is much an experienced director could do to introduce new policies or strengthen their implementation using the industry experience and risk management capabilities they have built up over the years. Results indeed show that the governance pillar is positively influenced by older directors in high-sustainability companies. Here, the systems for ESG are already robust, so the influence of older directors is most prominent in governance, where their experience aids in refining oversight and regulatory compliance. Overall, both medium- and high-sustainability companies positively affect the overall ESG score, with the effect being more pronounced in medium-sustainability companies than in high-sustainability companies. This distinction suggests that there is more room for significant ESG progress in medium-sustainability companies than in high-sustainability companies, where practices are already advanced. The result is consistent with the Resource Dependency Theory, which suggests that diverse resources and generational insights that come with age diversity could enhance the board’s ability to secure critical resources and enrich the decision-making processes to yield better sustainability outcomes, which is consistent with [66,67].

For education diversity, the results showed that educational diversity does not affect the overall ESG score for low-sustainability companies. In medium-sustainability companies, it negatively impacts the social pillar while not being significant in the other two pillars. This might be so because different educational backgrounds create a conflict of priorities among board members, and this results in a fragmentation of social policies, whose implementation is not effective. While in companies at a high sustainability level, diversity in education makes no significant difference for their environmental, social, and governance pillars taken individually; in all, it proves to relate positively to the overall ESG score. This is indicative that, although it could cause disequilibrium at the granular levels, it would help in reaching greater perspectives while summing up the ESG strategic approach of such an agency in its totality. In other words, different perspectives can lead to creative solutions and better decision-making that will improve the holistic ESG performance of the company.

Regarding the full sample as shown in Table 8, the results show similar results of the sensitive industries for the effects of female board members, nationality, and education on ESG scores across companies at different levels of sustainability. However, results vary when it relates to age diversity. The significant positive influence of age diversity on governance in companies with low sustainability may hint at the fact that diverse opinions and experiences from elder directors serve effectively for good governance practices, hence giving a higher overall ESG score. In medium-sustainability companies, the positive influence of age diversity on both the governance and social pillars underlines the important role of diverse age groups in decision-making processes and social initiatives. This yet does not have significant effects on the environmental pillar to show that other factors may dominate. In high-sustainability companies, although age diversity tends to have a positive influence on the social pillar, its insignificant effect on the environmental and governance pillars may indicate that such companies already have corresponding practices in place that may not necessarily be benefited by pronounced age diversity. It conveys that age diversity’s contribution to ESG performance varies with the context; the variation in effectiveness depends on a firm’s overall sustainability framework. the result consistent with [66,67].

5. Conclusions

The purpose of this study is to examine the impact of board diversity—gender, age, education, and nationality—on the sustainability performance of UK-listed companies by dividing the sample into sensitive and non-sensitive industries and further investigating how diverse board structure benefits companies with different levels of sustainability in both sensitive and non-sensitive industries. No financial companies were analyzed. A total of 1814 UK-based non-financial companies were included with observations over the period 2002–2021, giving a total of 36,280 data points. Independent variables were board diversity measures (gender, nationality, age, and education), which were collected from the BoardEx database. Various sustainability indicators (environment, social, governance, and ESG scores) are the dependent variables, together with certain firm characteristics designated as control variables, and all were from the Refinitiv DataStream database. Further, this study employed quantile regression to show how the impact of a given explanatory variable differs for companies with low, high, and medium performances.

Our results indicate that in sensitive and non-sensitive industries, the impact of board diversity on ESG performance varies significantly across sustainability levels. The finding of the sensitive industries shows that the female on board has a negative effect on the overall ESG score in both low- and medium-sustainability companies. However, the result shows that the nationality diversity has a positive effect on the overall ESG score in all the quantiles. On the other hand, in the non-sensitive industries, the result shows that age has a positive effect on the overall ESG score in both medium- and high-sustainability companies. However, education diversity has a negative effect in medium-sustainability companies and a positive effect in high-sustainability companies. Moreover, the nationality diversity has a positive effect on the overall ESG score in medium-sustainability companies. In addition, the full sample shows the same result in the sensitive industries except for age, as age has a positive effect on the overall ESG score in the low-sustainability companies.

The result aligns with the Institutional Theory in which it clarifies how companies are affected by social potential, norms, and regulatory burdens, whether in sensitive or non-sensitive industries, and how it can improve diversity in boards. Board diversity and sustainability performance pillars are supported by this theory, as they allow companies to meet regulatory and societal expectations, therefore enhancing legitimacy and trustworthiness. A strong association indeed exists between board diversity and sustainability performance, supported by diverse opinions, creativity, and improved decision-making in the boardroom. The results demonstrate that diversity among boards of directors positively influences sustainability reporting, governance practices, and stakeholder interests, which will, in turn, lead to improved market values, performance, and reputation of a firm. What remains important to be considered is the potential problems some members may pose concerning social categorization issues affecting the homogeneity of board members. It is necessary to ensure an optimum balance between diversity and cooperative efforts, so as to combat unproductiveness due to homogeneity and promote productive dialog in the board.

The findings of this study have important practical implications for companies seeking to improve their ESG performance by carefully forming their board of directors. Companies need to ensure that their boards reflect a diverse set of perspectives. For example, by having directors of different nationalities, companies can acquire international perspectives and foster innovation; it has been shown that board nationality diversity positively impacts overall ESG performance. Similarly, promoting age diversity can allow boards to combine the experience and wisdom of older board members with the innovative ideas and flexibility of younger members. This has been associated with better governance in less sustainable companies and a more robust social pillar in highly sustainable companies. Further, educational diversity is important, especially in sensitive industries, because it ensures a more unified way of tackling the pressures that come with the regulators and, most importantly, helps the boards to increase ESG investments. From a policy perspective, the results align with the UK’s continuous aim to enhance boardroom diversity for the sake of long-term sustainable business. To address the criticalities of ESG, policymakers may wish to strengthen incentives for diversity disclosure and adopt clearer criteria for balanced board compositions. Extending initiatives like the Hampton-Alexander Review and FTSE women leaders review to introduce criteria that consider diversity in terms of age, education, and nationality may build on existing gender diversity objectives to create governance structures that are more inclusive. Future legislation could also require scenario planning and impact studies for diverse boards to ensure diversity produces measurable ESG benefits across sectors.

The study includes some limitations. First, this study concentrates on a single developed country. While the UK has a well-regulated and developed corporate governance structure, this focus may restrict the findings’ applicability to countries with different institutional and cultural settings. Second, the study sample included the largest firms in the UK. Researchers should use caution when extrapolating these findings to small- and medium-sized firms in the UK. Third, this study’s analysis relied on data found in the annual reports, which is not the only available source of bard and sustainability performance information. Fourth, the analysis excludes the financial industry since its firms are subject to a particular set of laws and regulations, making them incomparable to firms in other sectors.

The research limitations provide potential for further research. Further studies could be conducted in other developed and developing economies where the governance of sustainability reporting varies. Also, multiple-country studies may be conducted, leading to enhanced generalization of the results to the contexts of many countries. Additionally, future studies might look at small- and medium-sized businesses in the UK or other countries. They might also investigate non-listed firms because their boards of directors may have different characteristics that may influence ESG performance. Other studies may also consider financial information communicated through other means, such as Internet reporting and/or social media. Further studies can also consider focusing on firms from specific industries to assess the association between board diversity within that industry and sustainability performance. For example, future research may investigate the relationship between board diversity and ESG performance in the context of financial firms. It is essential to carry out continual research in this area to improve corporate governance practices leading to sustainable development, with rapid changes in the business environment.