Environmental, Social, and Governance (ESG) Performance: The Role of Board of Directors

Environmental, social, and governance (ESG) are three central factors in measuring a business’s sustainability and societal impact. ESG has become a top priority for companies as investors and other stakeholders increasingly focus on environmental and social risks and opportunities. ESG is, therefore, used to evaluate potential investments and can help investors avoid financial losses. As a result, companies no longer see ESG simply as a compliance concern but rather as a source of increased resilience, competitive advantage, and value creation. The perceived advantages of ESG for businesses have changed over time. ESG was initially utilized for risk management and regulatory requirements, but they are now believed to bring up new opportunities for business growth. Despite the increased attention paid to ESG performance, there is a dearth of information addressing how the board of directors may impact a company’s ability to manage ESG issues. Consequently, this chapter will discuss a few possible causes for why board composition is crucial or is becoming problematic in relation to ESG performance. Additionally, this chapter offers empirical evidence for the association between board composition and ESG performance.