Does Green Finance Drive Sustainable Banking? A PLS-SEM Analysis of CSR as a Mediator in Nepal's Commercial Banks

Abstract

Background: Green finance has emerged as an important mechanism for integrating environmental and social considerations into banking activities. As commercial banks increasingly adopt sustainable financing practices, understanding how green finance contributes to sustainable performance is particularly relevant in emerging economies such as Nepal.

Purpose: This study examines the effect of green finance on the sustainable performance of commercial banks in Nepal, considering corporate social responsibility (CSR) as a mediating variable.

Design/methodology/approach: The study adopts a descriptive and explanatory research design. Data were collected from 400 senior employees of commercial banks using non-probability purposive sampling. The study is grounded in the Triple Bottom Line Theory. Data were collected using KoboToolbox and analyzed using SmartPLS through partial least squares structural equation modeling (PLS-SEM).

Findings: The findings indicate that green finance has a significant positive relationship with all three dimensions of sustainability: environmental, economic, and social sustainability. Furthermore, CSR partially mediates the relationship between green finance and sustainable performance. The study also identifies challenges related to limited awareness and inadequate regulatory support for green finance practices.

Conclusion: The study concludes that green finance significantly contributes to the sustainable performance of commercial banks in Nepal. Strengthening green financing practices, CSR initiatives, awareness, and regulatory support may help banks enhance their contribution to sustainable development.