The Impact of Green Finance on Financial Sustainability of the Banking Sector in Sri Lanka.

Abstract

Green finance is emerging as a major force for sustainable development in the banking industry, yet there is still limited empirical research on its effects on financial sustainability in Sri Lanka. This study examines how the economic, environmental, and social dimensions of green finance affect the short-term and long-term financial sustainability of licensed commercial banks in Sri Lanka. A cross-sectional survey design grounded in a positivist, deductive, quantitative approach was adopted, whereby the economic, environmental, and social dimensions of green finance and a set of short-term and long-term indicators were used to measure the financial sustainability of the banking sector. A structured questionnaire using a five-point Likert scale was used to collect primary data from 240 managerial and finance employees of licensed commercial banks in Sri Lanka, selected through convenience (availability) sampling. Partial Least Squares Structural Equation Modelling (PLS-SEM) was used to analyse the data. The results demonstrate that all three dimensions of green finance - economic, environmental, and social - have a significant positive effect on both short-term and long-term financial sustainability, with the economic dimension having the greatest impact and the social dimension having relatively less significant effects. The study concludes that green finance is a crucial complement to financial sustainability in the banking industry in Sri Lanka, with key implications for policymakers and financial institutions seeking to enhance sustainable financial practices. The findings add to the limited empirical research available in a developing-country setting and offer lessons on how to enhan1ce the adoption and performance of green finance initiatives.