This paper explores the role of corporate governance (CG) in supporting the transition towards sustainable economies by fostering the adoption of sustainable funding (SF) strategies within the banking sector. Considering regulatory pressure, evolving market expectations and the increasing relevance of sustainability in financial industry, the authors examine how CG, and its sub-pillars, influence banks’ engagement with environmental, social and governance (ESG)-labelled debt instruments.
Drawing on data from LSEG Workspace and EIB database, this study uses panel logit and fixed effects regressions to assess the influence of CG mechanisms on banks’ propensity to raise sustainable debt. Robustness checks and additional analyses are performed to address potential endogeneity concerns, measurement biases and sample heterogeneity.
The findings show that CG positively influences banks’ engagement in sustainable finance. All CG dimensions contribute significantly, with the Management score emerging as the most explanatory factor. Cross-sectional analyses reveal that this relationship is stronger for banks with more independent and gender-diverse boards, IRB models and larger sizes.
The analysis is particularly relevant for policymakers, professionals and academics, as it underscores the potential of CG in driving sustainability strategies, offering a strategic lever for aligning with emerging regulatory frameworks and market-driven sustainability practices.
This study contributes to the growing literature at the intersection of CG and SF. By examining how CG mechanisms influence the adoption of alternative funding strategies in the banking sector, the authors enrich the ongoing debate about the drivers behind banks’ engagement with ESG-labelled instruments, particularly in the case of blended finance.
