Abstract

The purpose of this paper is to investigate the impact of economic policy uncertainty (EPU) on environmental, social and governance (ESG) performance in the European banking sector and then to investigate the moderating influence of board gender diversity (BGD) on this relationship. We analyzed a sample of 113 European Union banks for the period 2016-2024 and we developed an econometric model applying a dynamic panel data regression analysis (generalized Method of Moments – GMM System) on 1,017 bank-year observations. To test research hypotheses, we considered BGD in terms of female participation on the board of directors and we measured ESG dimensions by using the ESG score provided by LSEG Refinitiv. The results highlight that EPU affects the ESG performance of European banks and specifically, demonstrate that EPU reduces the overall ESG score. EPU also declines governance and environmental engagements but enhances the social activities to dampen uncertainty during periods of high EPU. This study also suggests that the presence of women on board mitigate these negative effects since the influence of EPU on overall ESG performance is positive in this circumstance. The investigation is highly relevant for regulators, policymakers, potential investors, managers and other stakeholders who are interested in improving the ESG performance of banks under different uncertainties. In this regard, the study represents a significant avenue for future research, with relevant implications for both theory and practice. Our study significantly contributes to the existing literature on the relationship between EPU and ESG in developed countries such as the European context. In this regard, our research is the first that offers insights about the influence of the EPU on ESG performance in the European banking sector.

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