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Abstract

This study investigates the relationship between greenwashing (GWS) and Finance performance (FP) of banks in developing economies, focusing on two critical moderating factors: boardroom diversity and Environmental, Social, and Governance (ESG) controversies. Using a sample of 110 listed banks across 18 developing countries from 2012–2013 to 2021–2022, this study employs regression analysis to assess the impact of GWS on FP. The study uses the peer-relative GWS score by Yu et al. (2020) and introduces boardroom diversity and ESG controversies as moderating variables to analyze their influence on the GWS-FP relationship. The findings reveal that GWS significantly negatively affects the FP of banks in developing economies. Furthermore, the presence of female directors on bank boards moderates this relationship, reducing the financial penalties associated with GWS. ESG controversies, on the other hand, amplify the negative impact of GWS on FP, indicating the importance of a holistic approach to sustainability. This study addresses critical gaps in the literature by examining the nexus between GWS and FP, specifically within the banking sector of developing economies—a context that has received limited attention. Moreover, the study offers novel insights into the governance-sustainability-performance dynamic in the banking sector.