Environmental pressure and board gender diversity: Evidence from the European Union Emission Trading System

We examine how environmental pressure influences board gender diversity. Drawing
from resource dependence, strategic adaptation, and gender socialization theories,
we develop and test the prediction that firms with worse environmental performance
have a higher likelihood of increasing their board gender diversity following a rise in
environmental pressure. Focusing on the third phase (2013–2019) of the European
Union Emission Trading System (EU ETS), we exploit the unexpected increase in
emission prices after the European Council's (EC) intervention in 2017 as a quasinatural
experiment bringing heightened environmental pressure to firms. Our baseline
sample consists of 182 polluting firms in 20 different EU ETS-covered countries.
In line with our main hypothesis, we find that board gender diversity increases with
firms' industry-adjusted levels of pollution in the post-EC intervention period, with
the effect being particularly pronounced for firms with a higher exposure to emission
prices and lower diversity levels. Inconsistent with a window dressing explanation,
highly polluting firms replace incumbent male board members with highly qualified
women. Our findings, which survive several robustness tests, suggest that more stringent
environmental regulation drives social and governance changes at top corporate
levels.