Impact of Green Banking Practices on Sustainable Environmental Performance and Profitability of Private Sector Banks

Impact of Green Banking Practices on Sustainable Environmental Performance and Profitability of Private Sector Banks

Pooja Jain, Bhuvanesh Kumar Sharma
DOI: 10.4018/IJSESD.330135
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Sustainable environmental performance linked with profitability has been one of the brimming concerns in the worldwide scenario. Therefore, the current study aimed to examine the impact of green banking practices on the firm's sustainable environmental performance. Further, the impact of sustainable environmental performance on firms' profitability was also measured. A survey-based research design was employed by collecting data from Private sector bank employees of India. The data analysis was performed on the selected private bank employees collected from August 2022 to November 2022 by employing the PLS-SEM method with the help of smartPLS software. The study found a significant positive relationship between bank environmental performance and profitability. Consequently, green banking policy significantly influences the day-to-day operation and funding or investment in green projects. Specifically, the study hypothesizes that green banking practices lead to improved operational efficiency, increased funding and investment in green projects, enhanced sustainable environmental performance, and improved profitability for private sector banks. The results of this study contributed to the existing literature on green banking practices and provided insights for policymakers, bank management, and other stakeholders interested in promoting sustainable banking practices.
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1. Introduction

Banking sector is one of the most primeval services in the world. But due to the increasing concern for eco-friendly practices, the banking sector has transformed into a new practice known as 'Green Banking Practices’ (Kablana, 2015). However, green banking services are those banking practices that concern financing activities and use different financial methods to promote environment-friendly activities. Green Banking promotes social and environmental practices and lessens the usage of carbon footprints used excessively in banks (Menon et al. 2017). So, it is a step forward for sustainable development in organized and unorganized financial sectors (Dipika, 2015; Gunawan et al., 2022).

Initially, green banking was developed in the Western world in 2003 to safeguard the environment. It is deliberated as the significant approach to address sustainable development and generate attentiveness regarding environmental accountability (Risal & Joshi, 2018). It can also be considered as an extended version of ‘Digital Banking.’ Digital banking slightly defer from green banking as Digital banking only focuses on easing lives by using the online facilities provided by the banks whereas green banking has made lives easier by taking care of social and environmental relations (Sharma & Jain, 2021). Green banking mainly aims to lower the costs incurred in daily operations and add value to the business, reducing risk (Kushwaha et al., 2022), resulting to improve profitability. This contemporary banking practices will eventually result in the attaining of the commercial and socio-environmental goals of the banks.

Though the government of India is taking several measures to promote green banking practices, still there is dearth of awareness of this concept. As per the Indian banks association, a “green bank is a bank that mainly focuses its attention on environmental, social and governance (ESG) concerns to safeguard the environment and preserve natural resources. The nation's growth lies behind what new ideas are brought to the table and opportunities for economic growth in the long future. The various activities covered under the green banking services are in the form of green loans, which are providing loans to projects involving environment-friendly motives, green credit cards, i.e., the credit cards are biodegradable, mobile banking or internet banking by which we can reduce the paperwork and do the everyday banking transactions online (Jain & Agarwal, 2019). All these activities work to enhance environmental performance. Infect, profitable financial performance is the second most important ESG priority after innovation (Statista, 2022). It means, the organisations wish to achieve the greatest financial performance by using various ESG measures and green banking is just one among all measures. The banks, be it the public or private sector, have played an essential role in implying it, but there is a long way to go to attain the purpose of sustainable banking (see Figure 1).

Figure 1.

ESG priorities for investors worldwide in 2022


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