This study explores the dynamics of sustainable banking and evaluates how financial and environmental policies shape bank performance. A system dynamics model was developed and simulated using Vensim software to capture the internal feedback structure of banking operations. Empirical and secondary data from 2018–2024 (1397–1403 in the Persian calendar) were used to construct and validate the model. The framework centers on two interconnected components—financial performance and sustainability—linked through a reinforcing profitability loop and a balancing sustainability–return trade-off loop.
After validation, the model was employed to forecast behavior for 2025–2031 (1404–1410) under three policy scenarios: (1) investment in technology, (2) expansion of green financing, and (3) stronger adherence to ESG principles. The simulation results show that sustainability-driven strategies guide banking performance toward steady growth and continuous improvement. Combined policies yield more stable and synergistic outcomes compared to isolated interventions. Sensitivity analysis confirms the robustness and flexibility of the model against parameter variations.
Overall, the findings demonstrate that integrating technology investment, green finance development, and ESG commitment offers the most effective approach for achieving sustainable banking. Such integrated strategies not only improve profitability and resilience but also enhance public confidence and reduce risk. The study underscores the critical role of simulation and scenario analysis in crafting efficient policy frameworks and supporting strategic decision-making in the banking sector. Future research may advance this field by expanding dynamic models, applying multi-bank datasets, and integrating behavioral dimensions of sustainability.