Resumo

According to the World Economic Forum report (2019), extreme environmental events are significant threats to corporations, which may have their supply chains affected due to adverse weather conditions. In this vein, several organizations have developed sustainable practices, such as waste management, carbon reduction and environmental innovation (Lewellyn & Muller-Kahle, 2024). These sustainable initiatives, which cause a measurable impact at an environmental, social and governance level, can be defined as ESG performance.

The literature review developed by Martiny et al. (2024) showed that there are no studies on this relationship on the African continent. Furthermore, adding the institutional environment to this relationship is of great value, as African countries lack strict environmental legislation, penalties and adequate incentives for ESG practices and efforts (Guidolin & La Ferrara, 2007). The purpose of this paper is to examine the moderating role of democracy in the relationship between board structure and ESG performance of African companies.

Institutional Theory has become one of the most popular theoretical lenses used to approach environmental management, as it collaborates with the investigation of factors external to organizations that can shape corporate strategies to combat climate change (Alonso-Almeida et al., 2021). Institutional theory asserts that companies adopt sustainability initiatives not only because of their economic appeal, but also because of institutional reasons exercised through normative, coercive and mimetic forces (DiMaggio & Powell, 1983).

To achieve the research purpose, we investigated the ESG performance of 208 companies based in ten African countries for a period of five years (2017-2021). Based on the paper by Githaiga and Kosgei (2023), who identified important characteristics of the board structure in East Africa, we defined the board structure: gender diversity, board size and experience of board members. We analyzed the data combining a symmetric approach (panel data regression) and asymmetric approach (fuzzy set QCA).

We find that gender diversity and smaller boards drive better ESG performance. Our findings also indicate that democracy moderates the relationship between board structure and ESG performance. Therefore, in African countries that have more social participation, rights, inclusion and equity, companies tend to have a higher ESG. In this vein, by giving citizens a voice, African governments are indirectly promoting ESG performance.

Therefore, companies must be understood in a politically situated way. This means that institutional aspects matter for determining environmental policies and strategies by companies. In emerging contexts, such as Africa, companies suffer from high levels of corruption, weak governance and low levels of democracy. However, organizations can replace this institutional instability with ESG practices in order to increase confidence in their performance in the market, which can promote increased investments.

Barros, V., Verga Matos, P., Miranda Sarmento, J., & Rino Vieira, P. (2024). ESG performance and firms’ business and geographical diversification: An empirical approach. Journal of Business Research, 172, 114392. Lewellyn, K., & Muller-Kahle, M. (2024). ESG Leaders or Laggards? A Configurational Analysis of ESG Performance. Business and Society, 63(5), 1149–1202. Martiny, A., Taglialatela, J., Testa, F., & Iraldo, F. (2024). Determinants of environmental social and governance (ESG) performance: A systematic literature review. Journal of Cleaner Production, 456, 142213.