The Effect of Board Diversity and ESG Engagement on Banks’ Profitability and Risk

Companies, including banks, shall adapt to socio-economic risks and new trends like climate change. The mechanism to grasp stakeholders’ different social and environmental demands and include them in company’s strategies is to have a diverse board (i.e., board members with different gender, age and nationality). However, this diversity might create frictions and worsen decision-making. Therefore, this research investigates the impact of board diversity (BD) on bank performance (measured in terms of profitability and risk) assuming that BD shapes environmental, social and governance (ESG) engagement, which is also linked to performance. The analysis focuses on public commercial OECD banks from 2008 to 2019. Results on BD’s impact on bank performance are useful for policymakers, supervisory authorities, banks and managers in achieving more sustainable and stable banking.