Banking on Sustainability: A Cross-National Study of The Financial Sector’s Role in Advancing the Circular Economy

Abstract

Purpose - The aim of this paper is to discuss how the global banking sector could find a new purpose in supporting sustainability and the shift to a new way of production, i.e., a circular economy. It will assess the extent to which the world leading banks are actually striving to climate-compatible operations and the role they can play in the circular economy by enhancing financing decisions. The result refined into recommendations is the proposal of a three-fold Climate Action Plan Framework of Action, Measurement, and Disclosure in an effort to steer banks toward more sustainable business practices and open up sustainability reporting.

Design/Methodology/Approach - The paper uses qualitative, comparative method examining disclosures on ESGs and sustainability activities in 15-20 on the major banks of the U.S., Europe and India in the years 2019 - 2023. It dwells on cross-sectional and time series data of the bank reports to determine the following: (1) the pattern of lending to the carbon-intensive sector, (2) sustainable revenue generation patterns, and (3) the best practices of the pursuit of being compatible with the global initiatives like the Net-Zero Banking Alliance (NZBA).

Findings- The paper concludes that despite the efforts made by most banks to scale back their fossil fuel exposure and boost their operations in renewable energy industries, including nuclear energy, significant issues persist in the industry, especially, in the control of Scope 3 emissions and greenwashing risks and the proper application of KPIs to sustainability. Banks possess varying maturity in the sustainability process and this varies at both national and institutional levels considerably.

Practical Implications-Climate Action Plan Framework as suggested in this paper would act as a strategic guide amongst the financial institutions, regulators and policymakers. It is best that banks operationalize the sustainability goals by bringing measurable indicators and improving the norms of disclosures so they increase accountability and help build a regenerative economic system. It also offers a roadmap on how to enhance the climate aligned lending and transition finance which is reflected in the findings.

Social Implications-As financial institutions shift from linear to circular models, their role extends beyond profit to environmental and societal impact. The study highlights how transparent and responsible banking practices can foster trust among stakeholders, empower community-driven sustainability efforts, and accelerate the flow of capital toward inclusive, low-carbon growth. A strengthened banking commitment to circularity has the potential to generate long-term social value.

Originality/Value This research offers a unique cross-national perspective on the banking sector’s alignment with circular economy and climate goals. Unlike traditional financial analyses, it emphasizes sustainability indicators, ESG performance, and the strategic role of banks in enabling systemic transformation. By synthesizing qualitative insights from multiple geographies, the study contributes a fresh, actionable framework for integrating sustainability into core banking operations.

Social Implications-When financial institutions move out of the linear models to circular models, it is no longer only about attracting profit but about impacting the environment and society. The paper raises the issue of transparent and responsible principles within the banking sector as contributing to gaining more trust by the stakeholders, spurring the community-led sustainability, and the speeding up of capital to be allocated to low-carbon-level growth, as a factor of inclusivity. An enhanced banking commitment to circularity will create a long-term social value.

Originality/Value- This study provides a rare cross-national insight into the circular economy/climate matching with the banking sector. In contrast to the commonly accepted models of financial analysis, it focuses on the sustainability indicators and the ESG performance, as well as the strategic contribution of banks focused on bringing the systemic change. The integration of qualitative findings in different geographies allows the study to add a new practical model of incorporating sustainability into the core banking processes.