The green board paradox: environmental performance as a mediator between governance and earnings
DOI: https://doi.org/10.3846/jbem.2026.27262Abstract
This study challenges the “win-win” narrative in corporate sustainability by identifying a key trade-off between environmental performance and shortterm profitability. Using a global panel of the 1,000 largest companies across 23 developed markets, we employ a two-way fixed-effects estimation to test 24 potential mediation pathways linking board governance to financial outcomes via ESG performance. Our results reveal what we term the “Green Board Paradox.” We find that board independence and gender diversity are robustly associated with improved environmental scores, confirming their role in advancing corporate sustainability. However, this environmental performance acts as a significant mediator that is, in turn, associated with lower Earnings Per Share (EPS). This finding highlights a central tension: the very governance mechanisms that promote environmental responsibility simultaneously create a drag on short-term profits. Furthermore, we find that board independence and diversity act as substitutes, suggesting firms can achieve similar environmental outcomes through alternative governance configurations. Ultimately, our study provides critical evidence on the governance-sustainability-performance nexus, offering a nuanced framework for navigating the trade-offs between corporate ESG ambitions and financial realities.
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ESG, corporate governance, board independence, gender diversity (women on boards), environmental performance, mediation analysis, two-way fixed effects modelsHow to Cite
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Copyright (c) 2026 The Author(s). Published by Vilnius Gediminas Technical University.
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