The Importance of Board Diversity and Network Centrality in ESG Scores

Abstract

This paper aims to identify some of the determinants of firm performance on social and environmental issues. Specifically, we look at the effect of corporate boards’ gender diversity. Then, we measure the impact of corporate directors’ social networks as captured by centrality measures. We focus on a sample of Italian-listed companies over the period 2010-2018. We find evidence of a positive relationship between gender diversity and a firm’s environmental (E) and social (S) scores suggesting that social and environmental responsibility is higher when there are more women on the corporate board. Also, board member social networks matter as network centrality measures are positively linked to the E and S scores. This information is valuable not only to the company itself but also to policymakers who are interested in improving firms’ environmental and social performance.

Keywords: ESG, Board Diversity, Network Centrality