SPI Journal, Spring 2023
Connecting the dots
Diverse bank boardrooms contribute to fighting climate change
Female directors have a positive impact on corporate responsibility goals, write Leonardo Gambacorta, head of innovation and the digital economy, Bank for International Settlements, Livia Pancotto, lecturer in banking, University of Strathclyde, Alessio Reghezza, expert, directorate general macroprudential policy and financial stability, and Martina Spaggiari, financial stability expert, European Central Bank.
Following the 2015 Paris agreement, achieving carbon neutrality is one of the world’s most urgent priorities. Since banks play an important role in modern financial systems by channelling funds to the non-financial sector, they can contribute to a faster transition to a carbon-neutral economy via sustainable lending decisions. A bank’s climate strategy and commitment to align with the global sustainability agenda depend on the trajectory defined by the board, which is influenced by its composition and degree of diversity.
Sociological and physiological theories suggest that female directors on boards can have a positive impact on corporate social responsibility goals because of the lower likelihood of women to damage the environment and their greater concerns about ethical issues, compared to men. By bringing different perspectives to the table and by adopting a more participatory leadership style, women on boards might facilitate conversations and decisions on CSR-related tasks, being better able to manage the relationships with various stakeholder groups.
As a major channel of credit to the real economy, banks can play a pivotal role in the global effort to promote green(er) projects and an effective shift towards a low-carbon economy. Furthermore, the increasing pressure from policy-makers, investors and customers significantly influences banks’ lending and investment activities towards more sustainable options. Given the relevance of climate change and the increasing attention on how to combat its effects, it is therefore important to appreciate the way the financial sector and the banking industry contribute to decarbonising the global economy, while fostering improvement in the corporate sector’s environmental performance.
In a working paper for the European Central Bank and Bank for International Settlements, ‘Gender diversity in boardrooms and green lending: evidence from euro area credit register data’, we explore the potential influence of women in the boardroom on banks’ lending strategies. We relied on a unique sample of almost 1m loans for 2019 extracted from the analytical credit register for the euro area, matched with firm-level information on greenhouse gas emissions intensity.
In the paper, we investigate to what extent greater female representation in banks’ boardrooms influences their capability to ‘green’ the economy. We consider 52 euro area banks, which account for about 60% of the total banking assets in the region. By employing a European-wide credit register, we exploit full heterogeneity across countries with different national settings and benefit from a large variation in cultural and institutional factors.
Our results indicate that banks with more gender-diverse boards provide less credit to more polluting companies. This inverse relationship is confirmed also when we differentiate among different scopes of GHG emissions. The effect is economically relevant with banks that have more female directors (above the 75th percentile of the related distribution) lending less (between 10% and 12%) to highly polluting firms (with a level of GHG emissions equal to or above the 95th percentile).
These findings have important implications for policy-makers. Policies that envisage a larger percentage of women at the bank management level not only have an impact on gender diversity imbalances but allow for more efficient fulfilment of environmental objectives. Our study points out the importance of the banking sector in achieving climate objectives, with the help of a greater presence of women in bank boardrooms.