Does diversity in top management and boards affect ESG performance? Evidence from Islamic and conventional banks in the MENA region

Abstract

Purpose

This study aims to investigate the impact of gender diversity in top management teams and boards on environmental, social and governance (ESG) performance. The authors propose a corporate social responsibility (CSR) committee as a moderating variable in this relationship, drawing on resource dependence and legitimacy theories. This study is crucial in understanding the dynamics of gender diversity and its impact on ESG performance in the banking sector.

Design/methodology/approach

The study examines a sample of Islamic and conventional banks from 10 Middle Eastern and North African countries during 2008–2022. Initial analysis was conducted using fixed effects panel regression, whereas the robustness test used the generalized method of movement dynamic system.

Findings

The findings, which are significant for both conventional and Islamic banks, indicate that female directors are crucial in promoting ESG performance in conventional banks. In contrast, female executives do not appear to contribute significantly. However, for Islamic banks, neither board nor executive gender diversity significantly affects ESG performance. Moreover, the find that the positive moderating role of the CSR committee is significant only for the nexus between board gender diversity and conventional banks’ ESG performance and for the connection between executive gender diversity and Islamic banks’ ESG performance.

Originality/value

Despite the widespread belief that gender diversity in top management teams is pivotal in promoting ESG performance, empirical studies supporting these claims are scarce, particularly in the banking sector. The study, therefore, brings a novel perspective to this discourse. These findings have the potential to significantly assist stakeholders in evaluating how gender diversity in top management teams influences banks’ sustainability practices, thereby empowering them to make more informed and impactful investment decisions.

Citation

Rabbani, M.R., Kiran, M., Bhuiyan, A.B. and Al-Hiyari, A. (2024), "Does diversity in top management and boards affect ESG performance? Evidence from Islamic and conventional banks in the MENA region", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 17 No. 6, pp. 1244-1266. https://doi.org/10.1108/IMEFM-06-2024-0281