Link Between Board Gender-Diversity and Green Lending

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    Stockholm (NordSIP) – There are plenty of reasons for private and public organisations to seek greater gender diversity in the boardroom. Numerous research papers have shown that diverse teams perform more effectively. Adding variety to a board’s viewpoints and skills facilitates the navigation of complex questions and protects businesses from excessive risks. Banks, of course, are no exception.

    According to a brand-new working paper by the European Central Bank (ECB), boardroom gender diversity also matters when it comes to accelerating the transition to a carbon-neutral economy through sustainable lending decisions. Having gathered comprehensive loan-level data from the whole EU area, the study finds that banks with more gender-diverse boards provide more credit to greener companies.

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    “Banks with a relatively high share of female directors (i.e., above 37%) display about 10% lower lending volumes towards firms with relatively high pollution intensity (i.e., last quartile of the distribution) compared to the other group of banks,” write the researchers. “This inverse relationship between banks’ lending volumes and firms’ pollution intensity for boards with more female directors is confirmed also when we differentiate among different types of emissions (i.e., direct emissions caused by a firm’s activities and indirect emissions arising from a firm’s energy consumption versus other indirect emissions).”

    Trying to understand whether there is a difference in banks’ lending behaviour depending on the country where the bank is located, ECB finds out that the “greening” effect of the female members in banks’ boardrooms is stronger in countries with more female climate-oriented politicians. The evidence also suggests that there are no differences in terms of lending to less polluting firms between banks operating in countries with or without legislative gender quotas.

    Deepening the investigation, the study also looks at three aspects that differentiate the women on the banks’ boards: their age, level of education, and background. The results show that some female director-specific characteristics matter for lending behaviour, indicating that better-educated directors, e.g., those holding a doctoral degree, tend to grant lower credit volumes to more polluting firms.

    “Our findings hold important implications for both regulators and policymakers,” conclude the study’s authors. “We underline the crucial role played by banks in potentially driving the transition towards a greener economy. Furthermore, we identify a central contribution of female presence on boards in shaping banks’ lending strategies in support of less polluting firms/sectors, thereby confirming the beneficial effects of more gender-diverse decision-making groups on firms’ outcomes and, in a wider perspective, on the global economy.”

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.
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