How Do Gender‐Diverse Boards Strengthen Sustainability Compensation Incentives? Evidence on the Moderating Role of Internal Audit and GRI Reporting

ABSTRACT This paper examines whether board gender diversity is associated with stronger Sustainability Compensation Incentives and whether internal audit reporting and GRI Report Guidelines strengthen this relationship. Rather than treating the international setting only as a source of data, this study places cross‐country institutional variation at the centre of the analysis. It argues that national governance regimes, legal traditions, ESG disclosure norms, and gender‐diversity pressures shape whether gender‐diverse boards can translate stakeholder‐oriented preferences into enforceable sustainability compensation incentives. The study uses a global firm‐year panel drawn from Refinitiv Eikon (LSEG) covering 2012–2023; the study applies fixed effects regression with governance and firm‐level controls. To address endogeneity, GMM and 2SLS are employed. Robustness tests include Driscoll–Kraay standard errors, panel‐corrected standard errors, lagged independent variables, and additional controls. The findings show that board gender diversity is positively related to SCIS, suggesting that gender‐diverse boards are associated with more formalized and transparent sustainability compensation structures. Internal audit reporting and GRI reporting are also positively associated with SCIS; however, GRI reporting does not significantly moderate the diversity–SCIS relationship. Although most baseline, endogeneity, and robustness tests support the positive diversity–SCIS association, the coefficient becomes insignificant under Driscoll–Kraay estimation, indicating more conservative inference when cross‐sectional dependence is addressed. The study shows that board diversity and internal audit reporting function as complementary governance reforms and identifies internal audit reporting quality as a key mechanism through which gender‐diverse boards enhance sustainability compensation architecture.