Embedding Sustainability: A Framework for Organizational Transformation in Banking

This chapter develops a framework for institutionalizing sustainability within banking institutions, drawing on insights from case studies and interviews with four Icelandic banks. It identifies six interdependent components essential to institutionalizing environmental, social, and governance (ESG) priorities: strategic alignment, distributed ownership, data infrastructure, cultural coherence, capacity building, and project-based implementation. Rather than treating sustainability as a compliance function or isolated initiative, the chapter emphasizes its integration into the core organizational architecture, spanning leadership mandates, incentive systems, internal narratives, and digital systems. The analysis highlights how successful banks align ESG with business strategy, decentralize responsibility while maintaining coordination, and use agile, cross-functional projects to accelerate learning and adaptation. Notably, the chapter highlights the crucial role of culture, capacity, and leadership in translating ESG ambitions into operational reality. It concludes by advocating a shift in sustainability governance from symbolic adoption to embedded practice, framing sustainability not as a separate agenda but as a new organizing logic for modern banking. The chapter provides a diagnostic and practical tool for financial institutions seeking to integrate sustainability more deeply across their functions.