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6 - Bank Governance and Sustainability

from Part II - Ethics and Sustainability in Corporate Law, Corporate Governance and Conduct

Published online by Cambridge University Press:  30 January 2025

By
Kern Alexander
Edited by
Kern Alexander ,
Matteo Gargantini  and
Michele Siri
Kern Alexander
Affiliation:
University of Zurich
Matteo Gargantini
Affiliation:
University of Genoa
Michele Siri
Affiliation:
University of Genoa
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Summary

This chapter discusses the importance of decision-making and agency problems in bank governance with particular focus on the role of the board of directors in addressing sustainability risks that are increasingly affecting the banking business. It considers traditional agency theories that underpin corporate governance and suggests that they do not offer a full explanation of the ‘collective’ agency problems that exist in large complex organisations, such as banks and other financial institutions. Human agency theory offers an alternative theory that emphasises the importance of organisational culture in determining standards, norms and values that influence agent behaviour. As to bank boards, the chapter stresses that although their role is primary, regulatory intervention may be necessary to ensure that organisational practices are adequately managing agency problems regarding sustainability concerns. The chapter concludes with some recommendations for how bank governance and business practices could be improved to support society’s sustainability objectives.

Keywords

bank corporate governancehuman agency theoryrisk culturemoral hazardadverse selectioncollective agencystewardship codesrisk culturereputational risks
Type
Chapter
Information
The Cambridge Handbook of EU Sustainable Finance
Regulation, Supervision and Governance
 , pp. 134 - 153
Publisher: Cambridge University Press
Print publication year: 2025

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