Emergence of Institutional Isomorphism in the Environmental, Social, and Governance Performance of European Banks

ABSTRACT

This study investigates whether institutional isomorphism contributes to the convergence of environmental, social, and governance (ESG) performance among 230 banks in the European Union and the European Free Trade Association from 2011 to 2021. Correlation and regression analyses using static and dynamic indicators were conducted to identify the relative strength of normative, mimetic, and coercive isomorphisms over time. To address methodological challenges, principal component analysis was used to mitigate multicollinearity, regional decomposition to account for heteroskedasticity, and logit transformation to accommodate the bounded nature of ESG scores. The findings indicate that regulation and mandatory disclosure are the primary drivers of ESG convergence, particularly in Central and Eastern European countries. However, the effects of different isomorphic mechanisms became less distinguishable following the Non‐Financial Reporting Directive. By quantifying the impact of institutional isomorphism on ESG performance, this study fills a gap in the literature and offers insights for both regulators and policymakers.