ESG performance and firm value: The moderating roles of ESG controversies and gender diversity in Western Europe

This study examines the influence of Environmental, Social, and
Governance (ESG) performance on firm value, with a specific
focus on the moderating effects of ESG controversies and gender
diversity on corporate boards. Drawing on stakeholder and
agency theories, we analyse how corporate governance
mechanisms impact the effectiveness of ESG strategies in
enhancing firm performance. Using panel data from 400 publicly
listed firms in Western Europe between 2001 and 2021, we apply
two-stage least squares (2SLS) regression to address potential
endogeneity. The findings indicate that ESG performance has a
positive impact on firm value; however, this relationship is
negatively moderated by ESG-related controversies. In contrast,
gender diversity at the board level strengthens the ESG–firm
value link, suggesting the importance of inclusive governance in
advancing sustainability agendas. This study contributes to the
corporate governance literature by highlighting the dual role of
risk (through controversies) and inclusivity (through board
diversity) in shaping the financial relevance of ESG performance.
Policy implications are provided for firms seeking to integrate ESG
principles while maintaining effective governance accountability.