Board Diversity and ESG Performance: Evidence from the Italian Banking Sector

Abstract

This study examines the influence of the diversity of the board of directors (BoD) and the environmental, social and governance (ESG) performance of 105 Italian banks during the period 2017–2021. Our analysis investigates board diversity in terms of board attributes (board size, board age, board gender diversity, board independence and CSR (corporate social responsibility/sustainability committee) and measures ESG dimensions by using the ESG score provided by the Refinitiv database hosted by Thomson Reuters. The main empirical results reveal that the board size, board independence and the presence of a CSR/sustainability committee positively influence a bank’s ESG performance while no significant relationship between board average age and ESG performance is found. Additionally, the relationship between gender-balanced boards and ESG performance is positive but the impact of female directors on ESG performance is non-linear when a critical mass of women is reached. This paper comprises an in-depth inspection of the corporate governance (CG) in banks, since in Italy there is limited literature concerning diversity in BoDs despite the relevance of the topic. This study is the first that examines the impact of specific CG characteristics (board diversity) on ESG performance in the Italian banking sector, to date. The investigation is highly relevant to managers and investors considering ESG issues in their decision-making process. In addition, findings have implications for both regulators and practitioners, suggesting that policymakers and managers should pay more attention to corporate governance aspects to enhance ESG performance.