Green Banking Disclosure in Indonesia: Do Financial Performance and Board Characteristics Matter?

Abstract

Green banking is an environmentally responsible practice within the banking business, despite its classification as a non-environmentally sensitive sector. Commercial banks can actively promote green banking initiatives by investing in emission-reducing technologies and providing loans to sectors with minimal greenhouse gas emissions. This article seeks to examine the impact of bank financial performance, board size, board independence, and board diversity on green banking disclosure. This study applied panel data regression to a sample of forty-three banks listed between 2019 and 2022, demonstrating that these banks' financial performance influences the level of transparency in green banking. The capital adequacy ratio (CAR) has a positive impact on green banking disclosure, whereas non-performing loans (NPL) and the loan-to-deposit ratio (LDR) have a negative impact. The size of board commissioners, board independence, and gender diversity do not correlate with green banking disclosure. The results suggest that banks with strong financial performance, i.e., higher capital and lower non-performing loans, have more resources to participate in the green banking activities disclosed in the sustainability report. The negative relationship between LDR and green banking disclosure indicates that the careful selection of loan distribution to businesses that care about the environment will increase green banking disclosure but decrease LDR. This study informs the Financial Service Authority (OJK) that, in order to promote sustainable finance in the banking industry, the OJK should oversee banks' financial health.