Composition and Activity of the Board of Directors: Impact on ESG Performance in the Banking System

Abstract

A growing body of research suggests that the composition of a firm’s board of directors can influence its environmental, social and governance (ESG) performance. In the banking industry, ESG performance has not yet been explored to discover how a critical mass of women on the board of directors affects performance. This paper seeks to fill this gap in the literature by testing the impact of a critical mass of female directors on ESG performance. Other board characteristics are accounted for: independence, size, frequency of meetings and Corporate Social Responsibility (CSR) sustainability committee. We use fixed effects panel regression models on a sample of 108 listed banks in Europe and the United States for the period 2011–2016. Our main empirical evidence shows that the relationship between women on the board of directors and a bank’s ESG performance is an inverted U-shape. Therefore, the critical mass theory for banks is not supported, confirming that only gender-balanced boards positively impact a bank’s performance for sustainability. There is a positive link between ESG performance and board size or the presence of a CSR sustainability committee, while it is negative with the share of independent directors. With this work, we stress the key role of corporate governance principles in banks’ ESG performance, with relevant implications for both banks and supervisory authorities.

The impact of sustainability (environmental, social, and governance) disclosure and board diversity on firm value: The moderating role of industry sensitivity

“…Cucari, Esposito De Falco, and Orlando (2018) find that a female presence on the boards of Italian-listed firms has a negative effect on ESG disclosure. Birindelli, Dell'Atti, Iannuzzi, and Savioli (2018) find a U-shaped association between board gender diversity and ESG performance in the Banking system. Our aim is to investigate the impacts of board gender diversity on the firm value and sustainability (ESG) disclosure of European firms; therefore, we develop our fourth and fifth hypotheses: 3 | DATA, VARIABLES, AND METHODOLOGY…”

“…Cucari, Esposito De Falco, and Orlando () find that a female presence on the boards of Italian‐listed firms has a negative effect on ESG disclosure. Birindelli, Dell'Atti, Iannuzzi, and Savioli () find a U‐shaped association between board gender diversity and ESG performance in the Banking system. Our aim is to investigate the impacts of board gender diversity on the firm value and sustainability (ESG) disclosure of European firms; therefore, we develop our fourth and fifth hypotheses:Hypothesis There is a positive association between a female presence on the board and the market value of European firms.Hypothesis There is a positive association between a female presence on the board and the sustainability (ESG) disclosure of European firms.…”

Disrupting the Status-Quo of Organisational Board Composition to Improve Sustainability Outcomes: Reviewing the Evidence

“…Often, researchers advocate for a critical mass of representation of women on a board. Though, Birindelli et al [22] counters this argument and calls for a greater emphasis on gender-balanced boards, citing Schwartz-Ziv's work that balanced boards demonstrate greater communication and effective problem-solving capacities.…”

“…In some studies [22,23,37,50,52], critical mass is considered in interpretations of diversity and what constitutes 'representation' on a board [22,32,33]. Overall, there are no reports of any boards with more women directors than men.…”

“…Nadeem et al [40] use Bloomberg's ESG score to measure sustainability disclosure and include the environmental categories: water consumption, energy use, wastes management and greenhouse gas emissions. However, the availability of relevant corporate environmental and social information was frequently noted as a major challenge for researchers [22,29,37,57].…”