Building Trust through ESG: A Study on Consumer Behaviour in Sustainable Fashion

1.1 Research gap

While the fashion industry is a significant area for environmental, social, and governance (ESG) considerations, the theoretical literature has predominantly connected ESG activity to financial performance. The fashion industry has a long way to go in terms of understanding the consumer-centric impact of ESG. However, the mediating roles of corporate image and word-of-mouth (WOM) on how ESG practices impact consumer behavior have hardly been investigated. This study seeks to address these gaps by providing a holistic examination of how firm image and WOM mediate the ESG relationship between fashion consumers’ purchase choices. The current study contributes to the literature on ESG investment by proposing and testing a conceptual model, which in turn provides a new understanding of how (mediation) ESG practices affect consumer behavior.

It would also take into account the varying effects across ESG dimensions, which can provide broader insights into how fashion companies could utilize ESG to enhance their brand image as well as consumers’ loyalty. The paper is divided as follows: a literature review, conceptual model, hypotheses of the research questions proposed, methodology results, and some practical strategies for fashion companies to develop ESG initiatives based on market positioning.

1.2 Contribution of study

This study elaborates on how ESG practices influence consumers’ purchasing decisions in fashion companies. This study discusses how the following three specific facets of ESG practices–environmental sustainability, social responsibility, and governance transparency–influence consumer perception and, in turn, their purchase decisions. Additionally, this study examines the role of corporate image as a mediating factor in this relationship and deals with the issue of how a well-managed corporate image can favorably contribute to boosting the positive effect of ESG practices on purchase decisions. Furthermore, it shows how word-of-mouth influences consumer behavioral aspects concerning the impact of ESG practices on consumer-to-consumer communication and brand loyalty. This research provides practical insights into how fashion firms can effectively implement and communicate ESG practices to enhance corporate image, develop positive WOM, and ensure consumer loyalty and sustainable business outcomes.

2.1 ESG

Environmental, social, and governance (ESG) refers to a broad range of activities including sustainable development, social impact, ethical standards, green practices, and purpose alignment (Gasperini, 2020; Sandberg et al., 2009; Zumente & Bistrova, 2021). The term ‘perceived ESG’ describes how well a company complies with social and stakeholder duties. Nonetheless, there is still knowledge on how ESG-related activities affect consumer purchasing as well as corporate revenue and profit (La Torre, Leo, & Panetta, 2021). The analysis revealed a significant decrease in the sales of products associated with ESG scandals, indicating that consumers consider ESG issues in their purchasing decisions (Cornell, B., & Damodaran, A., 2020). Reputation signals such as Corporate Social Responsibility (CSR) and sustainability efforts play a crucial role in building corporate brand performance and brand equity (Wang, S. et al., 2021).

2.2 ESG and fashion industry

Methods

This study used a descriptive survey research approach to examine the purchase decisions made by Generation Z regarding sustainable fashion and ESG practices. A total of 393 participants were selected through convenience sampling, and the data were collected through an online survey. The survey link was distributed via various social media platforms to ensure wide coverage. The participants were eligible to respond if they were aware of ESG concepts.

Data collection

The questionnaire was structured to capture respondents’ demographics, ESG awareness, brand image, word-of-mouth, and purchase decisions. It included 26 items across five key constructs: ESG Practices, Corporate Image, Word of Mouth (WOM), Trust, and Purchase Intention. Responses were measured on a Likert scale, with participants rating their agreement with each statement.

Data cleaning

Before analysis, responses were cleaned to remove outliers, incomplete data, and any entries that did not meet the inclusion criteria. Only complete responses from eligible participants were analyzed.

Statistical analysis

Data were analyzed using Structural Equation Modeling (SEM) with IBM AMOS software, following a two-step approach. In the first step, Confirmatory Factor Analysis (CFA) was conducted to validate the measurement model using key indicators like CFI, GFI, AGFI, NFI, and RMSEA. In the second step, path analysis was performed to test the hypotheses, applying the same fitness criteria. Descriptive statistics were also generated to examine the distribution of demographic data.

Reporting guidelines

This study complies with the STROBE (Strengthening the Reporting of Observational Studies in Epidemiology) checklist, ensuring adherence to established guidelines for transparency and reproducibility in survey-based research. The full checklist can be accessed on the EQUATOR network website at https://www.equator-network.org/reporting-guidelines/strobe/

ESG considerations are crucial for the fashion industry because of their wide-ranging impacts on various stakeholders and the sustainability of the industry (Gadinis, S., & Miazad, A., 2020). Firstly, investors increasingly scrutinize ESG performance, demanding higher returns for firms with robust ESG practices (Reber, B., Gold, A., & Gold, S., 2022). As sustainability becomes a key criterion for consumer purchasing decisions, companies in the fashion industry need to align with ESG standards to maintain investor confidence and market competitiveness (Silvennoinen, M.2022). Employees, a vital component of the fashion workforce, actively seek employers who prioritize ESG issues (Strine Jr, L. E., Smith, K. M., & Steel, R. S., 2020). The industry’s reliance on skilled and creative professionals makes it imperative for fashion businesses to invest in ESG initiatives to attract, retain, and motivate talent (Savitz, A., 2013). Positive workplace practices, aligned with ESG principles, not only enhance the industry’s social responsibility, but also contribute to increased employee productivity and satisfaction (Asrar-ul-Haq et al., 2017).

Suppliers with low ESG ratings face contractual challenges and reduce corporate customer engagement, emphasizing the need for an ESG focus throughout the industry (Odell, J., & Ali, U., 2016). The fashion industry’s environmental and social impacts are significant, making embracing environmental, social, and governance (ESG) practices pivotal in addressing concerns related to resource exploitation, environmental harm, and unsustainable practices. The industry, often criticized for contributing to pollution, waste, and unethical labor practices, can use ESG frameworks to guide responsible business conduct (Singhania & Saini, 2022). The industry’s heavy reliance on natural resources and complex global supply chains underscore the importance of adopting sustainable practices (Cammarano et al., 2022). Implementing ESG considerations provides a structured approach for the industry to address these challenges by fostering transparency, accountability, and responsible resource management (Veenstra & Ellemers, 2020).

Furthermore, the textile and clothing industry is seeing a transfer of consumer attention towards sustainable (and ethically produced) fashion (Lundblad & Davies, 2016). Fashion companies must incorporate ESG practices in their operations to cater better towards consumers with new needs, demands, and expectations, as well as to avoid losing brand reputation (Erhun, F., Kraft, T. & Wijnsma, S. 2021). Failure to do so risks staining your reputation, decreasing consumer trust, and even market share. While consumers and other stakeholders have been driving the push for ESG in fashion, it is not just an obligation from those expectations that need to be met; it is also a strategic imperative. In order to position themselves for a more sustainable future, embracing ESG principles will not only ensure fashion is aligned with global sustainability goals, but also mitigate risks and help strengthen brand reputation in an increasingly aware marketplace (Kandpal et al., 2024).

2.3 ESG and corporate image

The current trend in the literature is to investigate corporate reputation (Almeida, M. D. G. M. C. & Coelho, A. F. M., 2019; Gomez-Trujillo et al., 2020) given that it has become increasingly important and that organizations must identify what determines corporate reputation. Corporate image and reputation are critical signals for companies; however, their impact on product brand equity is often overlooked (Heinberg, M., Ozkaya, H. E., & Taube, M., 2018). The study examines consumer foot traffic in response to negative environmental, social, and governance (ESG) news (Dube, S., Lee, H. S. G., & Wang, D., 2023). The results of previous studies suggest consumers’ willingness to support sustainable and ESG-conscious products, but actual shopping behavior is influenced by factors such as brand loyalty, convenience, and affordability (Swedroe, L. E., & Adams, S. C., 2022; Dube, S., Lee, H. S. G., & Wang, D., 2023). This study suggests that there are no significant changes in consumer foot traffic around negative ESG news events (LI, F. W., & MICHAELY. R., 2023; Noh, S., So, E. C., & Zhu, C., 2023). However, in countries with higher income, education level, democratic political tendencies, and population density, consumer foot traffic decreases for firms with negative ESG news. Consumer loyalty moderates this effect, indicating that loyal consumers are less likely to change their shopping behavior in response to negative ESG news (Huo et al., 2022). This study contributes to the literature by examining consumer reactions to negative ESG news events and shedding light on the nuanced factors that influence shopping behavior (Dai, R., Liang, H., & Ng, L., 2021).

2.4 ESG and word of mouth

Prior studies have examined the relationship between perceived Environmental, Social, and Governance (ESG), sustainability, word-of-mouth (WOM), and intention (Vo, T. T., Xiao, X., & Ho, S. Y., 2019; Puriwat, W., & Tripopsakul, S., 2022; Bae, G. K., Lee, S. M., & Luan, B. K., 2023). The results show that consumers’ WOM intention is positively affected by eco-friendly service quality in golf resorts and acceptable CSR activities (Bae, G. K et al., 2023). Chae et al. (2015) highlights the significant impact of trust and brand emotion on word-of-mouth promotion and brand loyalty on mobile Social Networking Services (SNS), underscoring the importance of brand trust.

2.5 ESG factor and purchase decision

Consumer choices directly impact a firm’s revenues, and in the context of Environmental, Social, and Governance (ESG) performance, consumers may avoid or boycott companies perceived as socially or environmentally irresponsible (Yu, E. P. Y., Van Luu, B., & Chen, C. H., 2020; Choi, J., Roh, T., & Lee, J. H., 2024). Research shows evidence of ESG activities, particularly charitable contributions, being linked to revenue growth, but not all governance-related activities elicit similar consumer responses (Taliento, M., Favino, C., & Netti, A., 2019). Ethical considerations are increasingly being considered in purchasing decisions, with various practices impacting consumer behavior, including environmental responsibility, fair labor practices, social responsibility, and transparency in business practices (Bhaduri, G., & Ha-Brookshire, J. E., 2011). Brand loyalty is a key aspect of customer relationships and is positively influenced by ethical practices such as ethical advertising, pricing, and overall ethical behavior (Román, S., 2003). Trust in a brand plays a crucial role in developing brand loyalty, and sustainable marketing fosters loyalty and repeat business (Filo, K., Funk, D. C., & Alexandris, K., 2008).

2.6 Impact of corporate image, WOM, trust on purchase decision

Government and non-government organizations, along with community groups, play significant roles as stakeholders in corporate reputation (Barrett, M., 2001; Barić, A., 2017). Primary and secondary stakeholders exhibit distinct attributes and levels of involvement within an organization, often influencing the organization’s reputation in different ways (Fassin, Y., 2009). These differences in stakeholder characteristics moderate the association between corporate reputation and its antecedents and consequences, impacting the organization’s image and the effectiveness of its ESG practices (Ali, R., Lynch, R., Melewar, T. C., & Jin, Z., 2015).

The way stakeholders perceive an organization’s attributes varies significantly across groups, influenced by their experiences and access to information (Rindova, V. P et al., 2005). Groups with greater access, such as market analysts and senior management, often have differing attitudes and behaviors compared to other stakeholder groups (Morsing, M., & Schultz, M., 2006). Corporate reputation is shaped by these varied perceptions of its foundational qualities and expected outcomes, as each group interprets and values these elements differently (Ali, R., Lynch, R., Melewar, T. C., & Jin, Z., 2015). This study underscores the necessity of accurately assessing corporate reputation to support effective management and convey its value within the organization (Van Riel and Fombrun, 2007). Building stakeholder trust requires companies to consistently demonstrate competence, integrity, and accountability—delivering on promises, showcasing expertise, maintaining transparency, and owning up to decisions (Maio, E., 2003).

This study highlights gaps in the literature regarding the relationship between ESG practices and consumer behavior in the fashion sector. This highlights the need for a dynamic study of ESG initiative changes over time and a micro-level examination of customer reactions. The article also discusses consumer preferences towards sustainable and ethically created clothes, but lacks detail on the role of education in raising awareness. It also discusses cross-cultural differences in brand trust and the interactive impacts of image, word of mouth, and trust on purchasing decisions.

Hypothesis developed

See Figure 1.

Figure 1. Hypothesized relationships between ESG practices, corporate image, word-of-mouth, trust, and consumer purchasing decisions in the fashion industry.

This study examines the relationship between consumer trust; word-of-mouth (WOM); company image; and environmental, social, and governance (ESG) activities in fashion businesses. ESG policies, such as social responsibility and sustainability, improve a company’s reputation. Strong ESG practices generate positive word-of-mouth, which increases the effects of ESG activities. Purchase decisions are strongly influenced by consumer trust, which lowers perceived risks and boosts confidence in encouraging actual purchasing behavior.

Method

This study used a descriptive survey research approach to examine the purchase decisions made by Generation Z regarding sustainable fashion and ESG practices (Lamm, A. J., & Lamm, K. W., 2019). A total of 393 people participated online in the convenience sampling process used to select the sample. Data were collected through an online survey, as this link was shared on different social media platforms, so that responses could be collected by covering a large area. There is only one criterion that respondents need to qualify: if they are aware of ESG and concepts related to ESG, they are eligible to fill out the questionnaire. Along with providing detailed insights into customer preferences and impressions, the questionnaire included quantitative questions.

Descriptive statistics were used to analyze the data with a focus on ethics. The study focused on demographic data, awareness, and brand image to better understand customer trust and buying decisions in sustainable fashion. Before analysis, data were removed through a cleaning process in which outliers, data with missing values, and incomplete information were removed. Responses from these respondents were included in the study for analysis purposes that fulfilled the basic criteria and provided complete information.

The data were analyzed using Structural Equation Modeling (SEM), following a two-step process. First, a Confirmatory Factor Analysis (CFA) was conducted to validate the measurement model. The model’s fitness was evaluated using standard indicators such as CFI, GFI, AGFI, NFI, and RMSEA. In the second step, path analysis was performed to test the hypothesized relationships between variables.

Limitations of the study include convenience sampling, potentially affecting the generalizability of findings to the broader population, and the cross-sectional nature of the study, potentially overlooking changes in attitudes and behaviors over time. Future research should incorporate longitudinal and comparative studies to address these limitations.

3.1 Assessment of the measurement model

Data were analyzed using Structural Equation Modeling (SEM) techniques, following a two-step approach. The first step involved Confirmatory Factor Analysis (CFA) to validate the measurement model. Model fitness was evaluated using indices like CFI, GFI, AGFI, NFI, and RMSEA. The second step involved path analysis to examine the hypothesized relationships among variables. As indicated in Table 3, calculations were performed to determine the loadings, maximum H reliability, and maximum number of variables extracted to evaluate convergent validity. To assess the dependability of the equation modelling procedure, composite reliability (CR) is crucial. Using AMOS and SPSS, the researchers tested structural equation models and provided descriptive data on the indicators.

Following the guidelines from Hair et al. (1998), a Cronbach’s alpha value greater than 0.7 is considered indicative of strong internal consistency. Both convergent and discriminant validity were rigorously assessed. Convergent validity was confirmed through factor loadings and the calculation of Average Variance Extracted (AVE). Each construct displayed factor loadings above 0.6, indicating sufficient convergence among latent variables (Chin et al., 1997). The AVE values ranged from 0.5 upwards, meeting the minimum threshold required for establishing convergent validity. Discriminant validity was verified using the Fornell and Larcker (1981) approach, ensuring that the squared multiple correlations (SMC) for each construct were below the AVE values. Additionally, the AVE values surpassed the minimum benchmark of 0.3, as suggested by Bagozzi and Yi (1988), thereby confirming the robustness of the measurement model’s validity and reliability.

The results in Table 4 show that the corporate image of a company has a significant and positive relationship with the ESG Practice of a company with a p-value of ***. Similarly, WOM also has a positive and significant relationship with ESG practices. Trust also has a significant relationship with corporate image, revealing that a company’s corporate image helps build trust in their respective consumers. Similarly, positive word of mouth also plays a vital role in building consumers’ trust in making their purchase decisions (Bae et al., 2023; Zumente & Bistrova, 2021; Eccles et al., 2020; Sargentini, 2023; Dube et al., 2023).

Table 5 represents the regression weights; it was found that corporate image is the most influenced by the ESG practices of the company. There is also a strong and positive association between corporate image and consumer trust. This reveals that a more positive image of a company leads to trust in their respective consumers ( Figure 2).

Figure 2. SEM Model showing relationships among key constructs.

Ethics and consent

This study was conducted in accordance with the ethical standards set out in the Declaration of Helsinki for research involving human participants. Ethical approval for this study was granted by the Uttaranchal University Research Ethics Board (REB). The ethics approval number for this study is UU/DRI/EC/2024/008, issued on 30th September 2024. A formal approval letter was issued in a retrospective manner. In July 2024, we obtained verbal permission from the REB to commence our study as written approval was provided only when requested by a journal. The REB reviewed our comprehensive application and confirmed that we met all ethical norms and regulations before granting preliminary verbal consent. Consequently, we initiated our investigation in good faith and fully aligned it with the ethical standards outlined in the preliminary review.

The Data were submitted to the REB of the university, where board members and the chairperson assessed the viability of the research. After all the members were presented, their research objectives were approved for conducting the study.

Consent statement

All the study participants provided written informed consent. A self-explanatory written statement was included for the participants and submitted to the university research board.