Environmental, social and governance controversies: the role of European bank boards

Abstract

Purpose

In recent years, European banks have been required to integrate environmental and social objectives into their business practices. At the same time, they have become increasingly exposed to environmental, social and governance (ESG) controversies. This paper empirically examines the relationship between the board characteristics of banks (i.e. size, gender diversity, meeting frequency, sustainability compensation incentives and the presence of a sustainability committee) and exposure to ESG-related controversies.

Design/methodology/approach

The empirical analysis focuses on a sample of 61 European banks between 2012 and 2021. Employing generalized method of moments (GMM) estimation, the authors examine the relationship between board characteristics and ESG controversies.

Findings

The results of the study indicate that banks featuring certain board characteristics (i.e. larger and more gender-diverse boards, facing sustainability compensation provisions and having sustainability committees) experience lesser exposure to ESG controversies. Additionally, the authors ascertain that prior instances of ESG controversies play a role in influencing current levels of such controversies. This result highlights the relevance of a bank's historical trajectory.

Research limitations/implications

The authors' sample contains banks based in the European Union (EU). Future research should broaden the analysis to encompass banks operating in other advanced countries, as well as in emerging countries. This expansion would offer more insights into the relationship between board characteristics and ESG controversies under different regulatory frameworks.

Practical implications

The authors' findings provide relevant implications for several stakeholders, including shareholders, regulators and supervisors. Certain board characteristics should be taken into consideration to limit exposure to ESG controversies.

Originality/value

To the best of the authors' knowledge, this paper represents the first attempt to provide evidence of the link between strong corporate governance standards and reduced exposure to ESG controversies.

Citation

Agnese, P., Cerciello, M., Giacomini, E. and Taddeo, S. (2023), "Environmental, social and governance controversies: the role of European bank boards", Management Decision, Vol. 61 No. 12, pp. 3739-3754. https://doi.org/10.1108/MD-01-2023-0082