Sustainability Practices and their Effect on Performance in the Banking Sector - A Stakeholder Approach

Abstract

Sustainability has gained considerable interest from businesses, academics and in the press in the last two decades. However, the existing sustainability literature says little about what banks gain from moving towards sustainable development. Studies on the relationship between sustainability practices and performance in banks are extremely scarce and have produced inconclusive results. This thesis has two major purposes: to investigate the current sustainability practices in the banking sector and to examine the relationship between sustainability and performance in the banking sector. To achieve this, a sustainability model has been developed for the banking sector taking stakeholders’ effects into consideration. Content analysis was employed to collect the necessary data on stakeholder engagement, communication efforts to stakeholders, strategy and sustainability information. Performance data were obtained from the Bankscope database and 483 bank reports for EU & USA banks over the period 2006-2012 were examined. The data were first analysed using descriptive statistics. The main analysis involved bivariate tests and structural equation modelling path analysis. The results indicate that European banks pay more attention and communicate significantly more with different stakeholder groups than American banks. Banks responded to different degrees to stakeholder issues in their sustainability reports. Moreover, the results show that EU banks carry out more sustainability practices than USA banks. The results also show positive relationships between stakeholders’ salience and all aspects of sustainability; stakeholders’ communications and the environmental aspects of sustainability; size and all sustainability aspects except product sociology. The effect of stakeholder salience on sustainability is more significant in European banks pursuing a sustainability strategy while the effects of communications on sustainability are more significant in American banks with a non-sustainability strategy. Size affects sustainability more in banks with a non-sustainability strategy, but no differences were found for the effect of size on sustainability between the two regions. Furthermore, the results show that the environmental aspects of sustainability are not related to the banks’ performance, but a positive association with the social aspects of sustainability was found. This study is the first to develop a sustainability model for the banking sector. Hence, it makes significant contributions to the sustainability literature. It helps improve our understanding of the different dimensions of sustainability, how they are affected by different stakeholders and strategic orientations, and how they affect the performance of banks. The results of this study can help EU and USA banks to direct their efforts to areas that improve their engagement with stakeholders and their own performance.