Towards the Triple Bottom Line: Unveiling the Role of Board Diversity in Firm Financial and ESG Performance

Abstract

This paper investigates the associations between diversity on the corporate board and the Environmental, Social and Governance (ESG), market and accounting performance of 54 Danish firms using 2022 data. In line with previous research, board diversity is examined in terms of gender, age and nationality and traditional firm performance is measured in terms of Return on Assets (ROA) and Tobin’s Q. Moreover, in response to calls for broader assessments of firm success that consider the demands of stakeholders for firms to address ESG issues, firm performance is further measured using the ESG combined score created by Refinitiv Eikon. As such, firm success is comprehensively conceptualised as the Triple Bottom Line. Exceptionally, the level of ESG competencies of board members is also included in the analysis, presenting this paper’s novel contribution to the literature. Insights from Upper Echelons Theory guided the definition of propositions which were tested with a Multiple Correspondence Analysis. The empirical results reveal that board gender diversity, nationality diversity and levels of ESG competencies are positively associated with ESG performance, whereas age diversity exhibited no clear association. Additionally, gender and nationality diversity are positively associated with firm market performance, yet the association with age diversity was negative. No clear associations between diversity variables and firm accounting performance were found. The results have particular implications for firms seeking to leverage the performance benefits of different board compositions and for policy initiatives such as diversity quotas.