Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) – Disclosure of European Banks

247 Pages Posted: 3 Feb 2021

See all articles by Edgar Loew

Edgar Loew

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Giulia Erichsen

Frankfurt School of Finance & Management gemeinnützige GmbH

Benjamin Liang

affiliation not provided to SSRN

Margret Louise Postulka

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: February 3, 2021

Abstract

In the European Union the goal of transition towards a carbon-neutral economy by 2050 is identified as a major aim of the European Commission. The integral role of the financial services sector in funding such investments and enhancing the (re-) direction and allocation of capital flows towards sustainable projects and investments is increasingly acknowledged. Besides the integration of ESG and CSR into the banks’ operations, it can serve and be utilized as risk management tools.

This paper investigates the effectiveness of the EU Non-Financial Reporting Directive (2014/95/EU) with respect to the CSR disclosure quality in European banks from 2017-2019. After an overview of the EU’s path towards a sustainable financial sector from 2013 till present, the most important regulations will be assessed in detail, namely the Non-Financial Reporting Directive (2014/95/EU) and the Taxonomy Regulation on Sustainable Economic Activity (2020/852/EU). By constructing a multi-category CSR disclosure index to “translate” and quantify disclosed CSR information in the banks’ annual filings, a positive comparative development over the years is identified – indicating the general effectiveness of the directive. The construction of the disclosure index and the content analysis of the banks’ CSR disclosures is based on textual analysis.

In order to not only analyse and evaluate the level of CSR disclosure in European banks from 2017-2019, but also to identify potential factors influencing its quality, the collection of multiple data inputs is necessary. The paper examines the association between three factors of the balance sheet and the P&L on their significance on the disclosure score. These factors are asset size in million euro (proxy for size), common equity tier 1 ratio (proxy for market discipline) as defined in the Basel III regulatory framework (proxy for market discipline) and pre-tax return on assets (proxy for profitability). Furthermore, the association of other non-balance sheet factors and their correlation on the disclosure score is examined which are listing status (listed or non-listed), country of the head-quarter, (external) auditor and bank´s CSR report type. Therefore, this adds detail to research, as existing majorly focus on how CSR-related information is disclosed and not to what extent and quality.

This paper targets accountants, financial institutions, regulatory authorities, shareholders, investors and stakeholders in general who are affected by and interested in the overall CSR disclosure quality of European banks.

Keywords: Bank Accounting, Banks, Corporate Social Responsibility, Sustainable Finance, Disclosure, Accounting, Auditing

JEL Classification: G15, G18, G21, G28, K22, K23, M41, M42, M48

Suggested Citation

Loew, Edgar and Erichsen, Giulia and Liang, Benjamin and Postulka, Margret Louise, Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) – Disclosure of European Banks (February 3, 2021). European Banking Institute Working Paper Series 2021 - no. 83, Available at SSRN: https://ssrn.com/abstract=3778674 or http://dx.doi.org/10.2139/ssrn.3778674

Edgar Loew (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department ( email )

Sonnemannstraße 9-11
Frankfurt
Germany

Giulia Erichsen

Frankfurt School of Finance & Management gemeinnützige GmbH

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Benjamin Liang

affiliation not provided to SSRN

Margret Louise Postulka

Frankfurt School of Finance & Management gemeinnützige GmbH

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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