Reducing Information Asymmetry through ESG Communication : A Conceptual Framework for Consumer Trust and Financial Loyalty in the Indian Banking Sector

Abstract

The growing importance of Environmental, Social, and Governance (ESG) practices has transformed sustainability from a compliance-oriented activity into a strategic mechanism for strengthening stakeholder relationships within the banking sector. While existing research has largely focused on the financial and investor-related outcomes of ESG adoption, limited attention has been paid to understanding how ESG communication influences consumer perceptions in emerging economies such as India. This conceptual paper proposes a framework that examines the relationship between ESG communication, consumer trust, and financial loyalty in the Indian banking sector. Drawing upon Signaling Theory, Stakeholder Theory, Interest-Based Banking Theory, and Akerlof’s Lemons Theory through an extensive review and synthesis of existing literature, the study argues that effective ESG communication serves as a credible signal that reduces information asymmetry, enhances consumer trust, and ultimately strengthens financial loyalty. The framework further incorporates consumer trust as a mediating variable and proposes perceived greenwashing, ESG literacy, consumer awareness, information asymmetry, and third-party assurance as key moderating factors influencing the effectiveness of ESG communication. Through a comprehensive review and synthesis of existing literature, the study identifies significant gaps in consumer-centric ESG research within the Indian banking context and develops eight research propositions for future empirical investigation. The paper contributes to the sustainability, banking, and marketing literature by offering an integrated theoretical perspective that explains how transparent and authentic ESG communication can foster long-term customer relationships. The proposed framework provides valuable insights for banking institutions, policymakers, and regulators seeking to enhance disclosure credibility, strengthen consumer trust, and promote sustainable financial behaviour.