ESG Funds and Board Gender Diversity in Korean Large Firms: Symbol or Substance?

Abstract

This paper examines the influence of rising Environmental, Social, and Governance (ESG) focused investment funds on gender diversity increases in Korean corporate boards, questioning whether such visibility gains reflect authentic inclusive transformation or merely symbolic conformity to impress institutional investors. It engages with the debate over whether diverse boards genuinely enhance corporate sustainability and stakeholder oversight or if marginalized directors are largely ceremonial appointments lacking substantive influence. This discourse proves especially pertinent in Korean corporations, which have faced mounting regulatory and shareholder pressures to diversify historically homogeneous boards under recent legislation. The study’s first hypothesis contends the rapid growth of ESG funds incentivizes Korean firms to visibly demonstrate commitment to progressive social ideals like gender equity through appointment of female board directors. However, the second hypothesis argues the magnitude of ESG funds’ impact on diversity is attenuated within firms already exhibiting greater pre-existing internal commitment to CSR governance issues. The rationale behind the predicted moderating effect is that in contexts where stakeholder considerations receive emphasis, diversity advances likely emerge more authentically with new directors empowered into decision-making rather than granted ceremonial status. In contrast, externally induced board changes in firms lacking existing sustainability focus may be more decoupled from core operations, aiming to signal ESG alignment through visibility rather than fundamentally transform inclusive practices. Analysis of 11 years of Korean firm data reveals finding support for both hypotheses, underscoring the difficulty of discerning genuine advancement from superficial compliance even under shareholder pressures when internal contexts exhibit reluctance towards inclusive practices absent external catalysts. Accordingly, this paper calls for nuanced assessment of how financial incentives for governance changes interact with internal corporate dynamics, avoiding outright celebration or rejection. It emphasizes the need for cautious interpretation of visible diversity gains as sufficient progress, highlighting the ease by which substantive transformation still lags behind signaling motives when cultural foundations or intrinsic commitment prove lacking in historically homogeneous governance cultures.