Green Financing and the Financial Performance of Commercial Banks Listed on the Nairobi Securities Exchange: Empirical Evidence from Sustainable Financial Innovations

Abstract

Purpose: This study examines the influence of green banking defined as green lending, green bonds, ESG-aligned lending standards, and sustainable finance adoption on the financial performance of commercial banks listed on the NSE. Methodology: The study applies a positivist philosophy and correlational design using secondary data (2021–2023). Regression, diagnostic tests, and hypothesis testing were conducted using bank-level audited financial and sustainability reports. Findings: Green banking shows a positive but statistically insignificant effect on ROE (β = 0.114; p = 0.103). Diagnostic tests reveal non-normality, weak linearity, and low R², indicating immature adoption and inconsistent ESG reporting. Unique Contribution to Theory, Practice and Policy: Strengthen regulatory incentives, standardize ESG reporting, develop green-lending capacity, expand green bond markets, and embed climate-risk assessments into lending operations.