Female leadership helps in the climate change battle
By Livia Pancotto - Posted on 2 November 2022
Finance academic Dr Livia Pancotto has carried out research which looks at the impact of female board members in banks on climate change and sustainable business practices.
A recent survey by PwC (2022) on corporate directors shows that female board members significantly prioritize climate action compared to male peers.
Combatting climate change and its detrimental effects is at the heart of current social and policy debates. Following the 2015 Paris Agreement (COP21) on climate, whose rules have been finalised in the COP26 held in Glasgow in October 2021, achieving carbon neutrality is one of the world’s most urgent priorities. Since banks play a pivotal role in modern financial systems, by channelling funds to the non-financial sector, they can significantly contribute to a faster transition to a carbon-neutral economy via sustainable lending decisions.
A bank’s climate strategy and related lending decisions depend on the trajectory defined by the board, which in turn is influenced by the diversity of the board itself. The presence of female directors in banks’ boardrooms can add value along several dimensions, as extensively demonstrated by sociological and physiological theories, and empirical evidence.
In our recent study, we investigate whether and to what extent a greater female representation in banks’ boardrooms influences banks’ capability to “greening” the economy via lending decisions. We test this by employing very granular loan-level data from the euro area credit register (AnaCredit) matched with banks’ corporate governance variables and firms’ greenhouse gas (GHG) emission information. Given the likely impact of the Covid-19 pandemic on banks’ lending behaviours in 2020, our focus is on the year 2019.
We find that banks with more gender-diverse boards provide more credit to greener companies. Banks with a relatively high share of female directors lend about 10% less to firms with relatively high pollution intensity (i.e. browner firms). This inverse relationship is confirmed also when we differentiate among different types of GHG emissions. In addition, we also document the relevance of female director-specific characteristics in influencing the lending behaviour to more/less polluting firms as banks with better-educated female directors (holding a PhD) grant lower credit volumes to more polluting firms. Finally, we document that the “greening” effect of the female members in banks’ boardrooms is stronger in countries with more female climate-oriented politicians.
Summing up, greater female leadership seems to represent a crucial lever to exploit in order to effectively achieve sustainable business practices in the financial industry and make a real difference in the ongoing battle against climate change. Targeted 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.
Future research is intended to look at the pricing dimension of the credit to understand whether banks with greater gender diversity in the boardroom provide cheaper loans to greener corporates.
Livia's research Gender Diversity in Bank Boardrooms and Green Lending: Evidence from Euro Area Credit Register Data has been published and is available as a working paper online.
About Livia Pancotto
Dr Livia Pancotto is a Lecturer in Banking at the Department of Accounting and Finance of the University of Strathclyde. She is the Director of the MSc International Banking and Finance. Livia’s research interest covers the areas of empirical banking, European banking, banking regulation, financial stability, financial markets & intermediaries, and credit derivatives.
