**2. An empirical analysis of CSR in global systematically important institutions**

This chapter presents the results of a survey of a sample of banks belonging to the Global Systematically Important Institutions (G-SII) universe, as defined by the EBA. The list of banks included in this section follows the EBA's guidelines on the dissemination of indicators of global systemic importance in order not only to increase the transparency of the G-SII identification process, but also to achieve a level playing field in terms of disclosure requirements between systemically important institutions and other large institutions. The EBA guidelines directly follow the Recommendations of the Basel Committee to identify global systemically important banks (G-SIBs) and provide data that help assess the systemic riskiness of EU banks.

In line with the EBA's guidelines, all European institutions with a leverage ratio of more than 200 billion euros are required to participate in this disclosure. Our sample includes 25 G-SII operating on European territory in 2018. The following table (**Table 1**) shows the banks included in the sample. Of the 25 banks, 5 are from the United Kingdom, 4 in Spain and Sweden respectively, 3 in France, 2 in Germany and Italy and 1 for Austria, Belgium, Denmark and the Netherlands respectively.

In terms of assets managed in December 2018 (**Figure 1**), UK banks are at the top of the ranking (36% of assets attributable to the entire sample). In second place are Spanish banks with 18% of assets managed, followed by German banks with 12% and Italian banks with 11%. Overall, French and Swedish banks manage 18% of the assets. Netherlands ranks seventh with only 3%, followed by Austria and Norway with a total of 4% of assets managed. Finally, the Belgian and Danish banks are included in the final part of the rankings, with a total of 0.02% and 0.01% respectively.

In order to ascertain the degree of integration of CSR practices by the selected banks, several areas of investigation were analyzed, selected because they were considered relevant according to an analysis of the studies on the subject.

The research focused on four areas of investigation, relating to the composition, size and configuration of the Boards of Directors of the 25 banks examined. In particular, they were examined for each company:



#### *A State of the Art of Corporate Social Responsibility in Financial Institutions DOI: http://dx.doi.org/10.5772/intechopen.94477*

#### **Table 1.**

*Sample.*

In order to achieve our goal, we analyzed all the bank's official documents on governance and sustainability policies, as well as we used Datastream database with regard to some qualitative aspects.

#### **2.1 CSR in bank's corporate governance systems:** *introductory notes*

The importance and efficiency of CSR practices in banks depends almost exclusively on the board of directors and the information provided to stakeholders. The CSR disclosure helps to increase the well-being of stakeholders and communicate information on the bank's economic, social and environmental performance [36]. This reporting also reduces the information asymmetry between shareholders and bank executives [37]. In line with these considerations, CSR is a valuable tool to increase shareholder confidence and improve the bank's ethical behavior. It is therefore one of the key factors in influencing the bank's competitiveness and longterm success [38].

The growing interest in CSR has led many countries to introduce their respective regulatory frameworks. CSR regulations have been imposed for banks in different

**Figure 1.** *Total asset by country.*

countries over the years (e.g. 2003 in Austria, 2007 in Malaysia, 2009 in Sweden, 2010 in China, 2012 in Spain, 2016 in Belgium and 2017 in Hungary and Singapore). Other countries, such as Australia, Canada and Cyprus, have soft regulations in the form of recommendations to encourage the disclosure of CSR [39]. Banks should follow standards (e.g. GRI, designed for the financial services sector) or employ independent external auditors to ensure the quality and reliability of the information disclosed.

The efficiency of the banks' board of directors is important to ensure their stability, compliance with regulations, the protection of stakeholders as well as to form long-term strategies that also include sustainability issues [37, 40, 41]. Diversity in the composition of the Board of Directors is considered one of the key elements to resolve complex issues and satisfy the interests of different actors. Diversity on company boards should improve good corporate governance. The diversity of the Board of Directors is examined in terms of the composition of the board of directors with a focus on the size of the board, the independence of the board of directors and gender diversity.

#### *2.1.1 Board size*

The size of the board of directors in banks is much larger than the boards of directors of non-financial corporations [42]. These differences in the size of the board of directors may depend on the complexity of banking activities and regulatory recommendations. Several studies examine the relationship between the size of the board of directors and the various performance measures of banks. The size of a bank's board of directors has positive effects on performance; this is probably due to the fact that banks are complex businesses and the advantages of larger boards outweigh costs, improving monitoring functions and mitigating risks.

In order for the Board of Directors to carry out its functions efficiently, it is necessary to diversify the skills and experience of its members [43]. More board members are associated with better monitoring mechanisms for performing their functions as well as an improvement in CSR practices [44]. As more directors provide a more diverse and broader variety of skills and opinions, larger boards of directors are expected to focus more on the CSR [45, 46]. The banking sector, being subject to strict information disclosure requirements, is more transparent than non-financial companies.

*A State of the Art of Corporate Social Responsibility in Financial Institutions DOI: http://dx.doi.org/10.5772/intechopen.94477*

#### *2.1.2 Independent director*

Also the independence of the Board of Directors is considered one of the most efficient governance mechanisms [47]. Independence is linked to the presence of non-executive directors who ensure the correct behavior of the company [37, 48]. Independent directors therefore act as guardians of the company's legitimacy by ensuring compliance with regulations and meeting the expectations of the external environment, including social and environmental concerns [49]. Non-executive directors can be guided by personal interests and consequently pursue goals that are misaligned with the company's strategy. Since CSR information is obtained by management, there is a risk of spreading misleading information [50]. In that case, independent directors may reduce that risk. Much of the existing literature is agreed that non-executive board members are positively associated with the disclosure of the CSR of banks or its quality [49].

### *2.1.3 Board's diversity*

Nowadays a large part of CSR studies believe that a key success factor is represented by the diversity of the board in terms of gender, ethnicity or background. Diversity on boards, expressed in terms of the number of women on the board, should increase the independence of the board and focus on the interests of different stakeholders [40]. Leadership styles based on gender diversity suggest that women tend to be more democratic, showing more empathy for diversity [39, 51]. This indicates that women should have a positive influence on the functioning of the board of directors as they should promote collaboration and integration of more complex issues in discussions and decision-making. Much of the literature on the subject is in agreement in affirming the positive association between the number of women on the board of directors and the information on the CSR of the banks [43, 45, 48].

#### *2.1.4 CSR committee*

Finally, it is worth noting that in recent year companies, in order to achieve sustainability goals, more frequently choose to set up a committee. The CSR or Sustainability Committee assists the Board of Directors in overseeing the company's liability practices, but they can also play a key role in monitoring and evaluating the company's CSR performance by ensuring compliance with regulations that manage sustainability risks. In other words, the CSR Committee helps to improve the ethical culture of the company by ensuring that the potentially dangerous risks to the company's reputation are properly assessed [52, 53].

The CSR advisory committee periodically reports to the board on sustainability issues affecting the company, while managing public disclosure on sustainability issues. The existence of a CSR committee is evidence of the company's commitment to CSR and therefore to the pursuit of ethical and sustainable objectives [54, 55].

In line with these considerations, a company that decides to set up a CSR committee demonstrates not only its CSR commitment to stakeholders, but also its intention to make sustainability a key strategy to improve the extent or quality of sustainability disclosure [56–58].

#### **2.2 Empirical results**

The size of the board of directors as a lever to make the function of the bank's board of directors efficient is analyzed by several academics and scholars. In line

#### *Corporate Social Responsibility*

with the introductory considerations, a greater number of members of the board of directors is associated with better monitoring mechanisms for carrying out the functions of the board as well as an improvement in CSR practices. In line with these considerations, the analysis carried out revealed that the average size of Board of Directors is 13 members within a range that varies from a minimum of 6 to a maximum of 21 members. Although a positive correlation between the number of members of the Board of Directors and size - measured in terms of assets managed - can be detected, it does not however assume particularly significant values (correlation coefficient: 0,14) (**Figure 2**).

The second area of investigation concerned the examination of the number of independent directors. In line with existing literature, independent directors can reduce the risk of manipulation or distortion of CSR reporting. The boards of directors of the banks examined present an average of 64% of independent directors, in a range that varies from a minimum of 24% to a maximum of 64%. Only in one case is the board of directors made up exclusively of independent directors. However, it should be noted that most banks have at least 50% of independent directors (18 out of 25 banks), while in the remaining 7 banks the percentage of independent directors varies between 24% and 45% (**Figure 3**).

Gender diversity on boards of directors, usually expressed in terms of the number of women on the board of directors, should have a positive influence on the functioning of the board of directors and information on banks' CSR.

The empirical analysis shows that in 2018, the representation of women on the boards of directors of the banks analyzed was 35%. In three of the banks examined, the number of women on the board of directors is equal to the number of men. 18 of the banks examined have a percentage of women on the board of directors of more than 30%, while in the remaining 7 banks there is a percentage varying between 13 and 29% (**Figure 4**).

Establishing a committee dedicated to CSR is a widespread practice (92% of the sample). The analysis showed a strong heterogeneity in the behavior of banks. On the one hand, some banks decide to set up coordination committees that control other units dedicated to specific CSR issues. On the other hand, in other cases there is cooperation between officials at group level or committees focusing on specific issues relating to the environment, society and governance. The range of activities carried out by CSR functions include: stimulating CSR initiatives and increasing

**Figure 2.** *Board size.*

#### *A State of the Art of Corporate Social Responsibility in Financial Institutions DOI: http://dx.doi.org/10.5772/intechopen.94477*

#### **Figure 3.** *Number of independent directors.*

**Figure 4.** *Number of women on the board.*

**Figure 5.** *CSR committee.*

internal awareness of CSR issues; formulation and monitoring of policy and accountability programmes; responsibility for coordinating and implementing the company's sustainability strategy and action plan; measures to deliver the sustainability strategy and achieve agreed company-wide goals. In the cases examined, there is often a special committee for responsible investments in the asset management business area to ensure that banks' responsible investment policy is respected (**Figure 5**).
