When Leadership Meets Worldwide Governance: The Role of CEO Characteristics in Environmental, Social, and Governance Performance

Abstract

This study investigates how CEO demographic characteristics, including age, gender, and nationality, and cognitive characteristics, including tenure, education, and multiple directorships, influence firms’ ESG performance, with a focus on the moderating role of Worldwide Governance Indicators (WGIs). Using a regime/smooth transition approach with panel data from STOXX Europe 600 firms spanning the years 1999 and 2023, the results show that demographic characteristics exert a more consistent effect than cognitive effects in the full sample and in non-sensitive industries. In sensitive industries, however, both demographic and cognitive CEO traits significantly affect ESG performance. Older and female CEOs enhance ESG performance under strong worldwide governance indicators (WGIs) in the full sample and sensitive industries, whereas foreign CEOs perform better under weaker worldwide governance conditions. In non-sensitive industries, the patterns for female and foreign CEOs are reversed. Cognitive traits such as tenure and multiple directorships show limited influence, while higher educational qualifications improve ESG outcomes under weak governance but reduce them under strong governance across all samples. Overall, the findings highlight the importance of aligning CEO characteristics with the institutional governance environment to enhance corporate sustainability performance. This study contributes by examining how CEO demographic and cognitive characteristics affect ESG performance under varying country-level governance conditions. It also highlights sectoral differences between sensitive and non-sensitive industries and, by using a nonlinear (PSTR) approach, uncovers regime-dependent effects with implications for governance-aware CEO selection and ESG strategy. This study extends upper echelons and institutional theories by showing that the effect of CEO characteristics on ESG performance depends on country governance quality, offering insights for boards and policymakers seeking to align leadership selection with governance contexts to strengthen sustainability and accountability.