Prof. Dr. Hayam Wahba, Heba B. Hathout
Abstract This study investigates whether board characteristics influence the relationship between Environmental, Social, and Governance (ESG) and financial performance among 147 non-financial listed companies in Africa from 2019 to 2023. Existing research on the relationship between ESG and financial performance provides inconsistent findings and often overlooks the governance mechanisms through which ESG practices impact financial performance. Additionally, most of the prior research has predominantly focused on developed markets and typically examined ESG performance or ESG controversies independently. To address these limitations, this study utilizes the ESG Combined (ESGC) score, which integrates both positive ESG performance and negative ESG controversies within the African context, where governance frameworks and institutional environment differ from those in developed markets. The results indicate a positive and significant relationship between the ESGC score and both Tobin’s Q and ROE, highlighting how proactive ESG practices enhance legitimacy and stakeholder trust. A board structure characterized by gender diversity, independence, balanced expertise, an appropriate size, and limited CEO power strengthens the relationship between ESG and financial performance by enabling firms to translate their sustainability efforts into improved financial outcomes. By incorporating various theoretical perspectives, this study deepens the understanding of the relationship between ESG and financial performance dynamics in Africa, contributes to governance research, and offers practical insights for managers and policymakers seeking to enhance board effectiveness, ESG engagement, and corporate value. The findings also align with and support global sustainability objectives, particularly SDG 5 (Gender Equality) and SDG 16 (Peace, Justice, and Strong Institutions), demonstrating how governance practices can help achieve broader development objectives.