Board Characteristics, Social Trust and ESG Performance in the European Banking Sector

Abstract

The aim of this study is to examine the impacts of board size, gender diversity and independence on ESG performance whilst also examining the impact of country-level social trust on such performance. We perform a panel data analysis and the least squares method for a sample of 75 European banks and a time span of 4 years from 2016 to 2019. We find that ESG performance is positively associated with board gender diversity and independence, and negatively associated with board size. Surprisingly, we find a negative relationship between country-level social trust and ESG performance. This is an important finding that we interpret as being related to the loss of confidence in the banking sector in the wake of the 2008 financial crisis. To regain such trust, the banking sector is likely to have suffered higher social pressure to engage in ESG activities in countries where social trust is lower.