Green Banking and the Financial Performance of the Banking Sector of Pakistan

Abstract

In today's society, climate change is one of the most complex and pressing issues. People are increasingly aware of global warming and its far-reaching impacts on human life. This concern extends to various stakeholders, including governments, direct polluters, and financial institutions. Among these institutions, banks play a pivotal role in societal development. While banking operations may not have direct environmental implications, they are significantly influenced by the environmental awareness of their customers. The concept of Green Banking, also known as Ethical Banking, involves initiatives undertaken by banks to protect the environment. Banks can also diminish their carbon footprints through measures like adopting paperless banking, implementing energy-efficient practices, utilizing mass transportation systems, and incorporating solar energy systems. The objective of this study is to ascertain the benefits of Green Banking and its impact on financial performance. We have examined all banks in the Pakistani banking sector from 2013 to 2022 to achieve this goal. Green Banking practices are evaluated as the key variable. At the same time, financial performance is assessed using Return on Assets (ROA) and Tobin's Q. Our findings reveal a robust and statistically significant relationship between Green Banking and the financial performance of banks, as measured by both ROA and Tobin's Q.