An investigation on the effects of sustainable banking on financial performance of commercial banks in Kenya

Abstract

Over the past ten years, Kenya's banking sector has experienced a massive upheaval due to increased competition, shifting consumer demands, the emergence of business risk, and technological advancements. Banks have had to rethink their tactical models due to these elements in order to enhance their competitiveness and sustainability. This study determined how Kenyan commercial banks' financial performance is affected by sustainable banking. This research specifically focuses on three main goals: analysing the impact of social and environmental sustainability on the financial performance of Kenyan commercial banks, assessing the impact of economic sustainability on those banks' financial performance, and analysing the impact of social sustainability on those banks' financial performance. This research technique was underpinned by the Resource Based View (RBV) Theory, Open Systems Theory, and Stakeholder Theory. RBV stresses that only those rare and valuable resources can produce a competitive advantage. Open system theory underscores the importance of the surrounding environment concerning organisations. Stakeholder theory posits that organisations have responsibilities to more than just shareholders, including customers, employees, suppliers, and society. This research also employed a description research design. The study population comprised forty-two chief operating managers from Kenya's forty-two commercial banks. Enough information about economic, social, and environmental sustainability practices was gathered through primary data collecting using standardised questionnaires. Regression modelling was used to generate the assumptions, while predictive analysis was used in the data analysis. The null hypotheses that economic, social, and environmental sustainability do not significantly affect the financial performance of commercial banks and that these three dimensions of sustainability do not considerably affect commercial banks' financial performance were supported at the 95% significance level. Another area that ii demonstrated a highly positive impact was social sustainability, which includes CSR and stakeholder management. They concluded that environmentally sustainable practices like low carbon operations and green banking help increase the overall financial performance index by increasing the bank's perceived image and operational efficiency. From the established results, the study suggested that commercial banks must improve initiatives that support economics, social, and environmental sustainability. Besides helping banks achieve higher financial performance, these programs also assist organisations in achieving their corporate social responsibilities and sustainability goals. Such a view of banking is crucial to achieving the Kenyan banking sector's positive and organic development. This study recommended that commercial banks enhance economic, social, and environmental sustainability programs to improve financial performance.