Harmonizing Banks: Exploring Institutional Isomorphism through European Sustainability Regulation

This research explores whether banks are increasingly converging in the way they address European sustainability regulation. The convergence of institutions towards their market environments and regulation is referred to as institutional isomorphism throughout academic literature, and in the case of this research concentrates on the particular changes brought by the Corporate Sustainability Reporting Directive (CSRD) voted by the European Commission in 2021. The CSRD evaluates how banks report on their sustainability efforts in their annual sustainability disclosures, and how their reported data aligns with EU requirements in line with reaching a more sustainable development. To assess institutional isomorphism in the banking industry, this report proposes the junction of qualitative reporting increases and higher market adoption of the CSRD to represent general bank convergence. By conducting semi-structured interviews with 9 industry experts in sustainable regulation, the main findings indicate that (i) there is an increase in sustainable disclosures in the annual reports of banks; (ii) the quality of these reports is improving with regards to CSRD requirements; (iii) these positive changes in adoption and quality can be traced back to the CSRD. These findings indicate an increased degree of institutional isomorphism in the Luxembourgish banking ecosystem. This study underscores the importance of sustainability regulation and standard setting in leading banking institutions to comply with sustainability requirements and driving change for societal good.