In this thesis, I explore the role of financial intermediaries in climate and environmental issues. The thesis focuses on the climate and environmental responsibilities of financial institutions in three standalone chapters.
Paper 1 compares Islamic Banks (IBs) and Conventional Banks (CBs) based on their corporate governance structures and measures the effects of different corporate governance structures on the extent of Climate-Related Disclosure (CRD). Using a sample of 591 banks (169 IBs and 422 CBs) from 24 countries for the period between 2016 and 2019, I find that the different corporate governance structures in IBs and CBs impact CRD at different levels. The findings suggest that the complex and multi-level corporate governance structure of IBs is associated with a lower level of CRD, while the relatively straightforward corporate governance structure prompts CBs to disclose more information regarding climate and the environment. Further analysis confirms that the board of directors in financial intermediaries resort to increasing the extent of disclosure when the companies experience high levels of information asymmetry.
Paper 2 also compares IBs and CBs regarding the effects of CRD on their financial performance. Using the same sample as Paper 1 for the same period, the findings imply that CRD is associated with financial performance differently in IBs and CBs. Higher CRD improves the financial performance of CBs, as proxied by ROA and ROE, while CRD has a negative relationship with the financial performance of IBs. This negative relationship mainly occurs because engaging in more environmental and climate-related actions, and thus increasing CRD, significantly increases the costs for IBs. Furthermore, the channel analysis suggests that a positive association between CRD and financial performance occurs when information asymmetry is relatively higher in CBs. On the other hand, additional disclosure on the environment and climate plays a negative role in the performance of CBs when transparency has already been achieved.
Paper 3 focuses on the relationship between environmental investments of banks and their risk-taking behaviors. Employing a sample of 6,800 observations of 619 banks from 52 countries for the period between 2010 and 2020, the findings demonstrate that higher levels of environmental investments disrupt the stability of banks by increasing their risktaking tendencies. However, further analysis shows that a heterogeneously composed board of directors, taking board age, gender, board tenure, and financial expertise into account, reverses this negative relationship between environmental investment and bank risk-taking. I find that a heterogeneously constructed board of directors continues to decrease the riskiness of banks even in the presence of high levels of environmental investments.
