To green or not to green? How CSR mechanisms at the governance level affect the likelihood of banks pursuing green product strategies

What is it about?

We analyze the relationship between banks’ corporate social responsibility characteristics at the governance level and their green product strategies to detect the likelihood of banks supporting sustainability objectives. Using a sample of 94 listed banks from 22 countries over the period 2010-2019, we find that some governance characteristics increase the likelihood that banks implement green product strategies. Specifically, the characteristics related to bank transparency and commitment toward the community on sustainability issues, such as sustainability reporting and United Nations Global Compact adherence, are substantive. Other governance mechanisms related to internal organization, such as the presence of a CSR Committee or an environmental management team, appear to play more a symbolic role. Findings also suggest that current ESG-related compensation schemes require a considerable overhaul as they decrease the likelihood that banks engage in some forms of green financing. Interestingly, the likelihood of banks pursuing green product strategies has improved after the Paris Agreement, though it varies widely across regions. Taken as a whole, our insights could be useful in guiding regulators, supervisory authorities, and policymakers in creating conditions for banks to develop green products and, hence, encourage the sustainability behaviors of their clients.

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