The effects of sustainable practices on customer loyalty: an analysis of the banking sector through PLS-SEM

Abstract

Financial institutions approached sustainable practices for extremely distinct reasons; some for the market opportunity created by the substantial demand for financial sustainable products, some for the supervisory pressures and to avoid penalties. Other banks never exactly approached sustainable practices, because they were already intertwined in their mission and business model. It is important to understand that sustainable practices might carry additional costs for financial institutions, together with the entire re-organization of the strategy, business model, policies, risk management framework, and internal models. However, the implementation of such practices may potentially increase the customer loyalty up to the willingness of clients to remain notwithstanding better economic conditions in other financial institutions. This document will first provide an overview of the history of sustainable banking, together with a literature review of the main definitions that are needed to fully understand the concept. Secondly, the strategies and the practices that banks can use to approach and integrate sustainability will be assessed, together with the outline of the relevant regulation into force, also considering the expectations set by the supervisory authorities. The research aims to evaluate the impact of sustainable practices on customer loyalty, which will be considered with different levels of strength. Moreover, the roles as mediators of Customer Company Identification and trust will be analyzed, to better understand which is the preferred path for our sample depending on its specificities. The latter will be done by analyzing a questionnaire delivered to banks' clients. The hypothesis made on the direct relationship between implementing sustainable practices and loyalty, together with the mediator function of CCI and trust will be tested through PLS-SEM.