Board characteristics and effects on ESG performance: empirical evidence from the European banking system

This study examines the influence of board characteristics, including diversity, independence, board size, diligence, and board experience, on the environmental, social, and governance (ESG) performance of European banks. Data were collected for 472 European banks between the years 2017–2020. The set of explanatory variables consisted of corporate governance features labelled as best practices in the literature. Our study provides new understanding and insights into the importance of governance features on ESG performance. Our findings overall indicate that banks' ESG score is associated with gender diversity, independent directors, board diligence and Corporate Social Responsibility (CSR) committee. Based on this study, shareholders and policymakers will have a deeper knowledge of the significant roles that some board characteristics play as determinants of ESG performance in the banking system. To the best of our knowledge, most of the studies on the environmental theme are focused on the business world; our study intends to fill this further gap in the literature by focusing on the banking system. Indeed, our focus on the banking industry allows for a more homogeneous reference population and is important because banks, in transferring substantial funds, represent one of the main economic drivers that can enhance the transition towards a more sustainable economy. Our research contributes to the strand of literature focusing on ESG disclosure of European banks and the relationship with performance measures to help in closing the gap identified in previous research, mainly focusing on the business world.