Analyzing the Nexus Between Green Banking Initiatives for Sustainable Environment and Bank’s Profitability using Panel Data

Abstract

Green banking is a new concept in the finance industry that encourages socially responsible investing while reducing the carbon footprint in the financial sector. The study employs panel data regression to analyse the relationship between implementation of green banking and profitability of Indian commercial banks. Data was collected from 16 banks (both public and private sector institutions) from 1996 to 2019 with 2005 used as the transition point for the acceptance of green banking measures. Specifically, the study employs Fast Data Panel Regression (FDPR) models to analyze the association between net income, expenses, green banking implementation with profitability in terms of return on assets (ROA) and return on equity (ROE)[2] The results show a strong positive association between green banking and ROA for the post-implementation duration of 2019 highlighting that these green initiatives are starting to pay off in monetary terms, in due course. Nonetheless, no substantial association was noted between green banking and ROE, suggesting that shareholder returns are not yet affected by environmental sustainability practices. Net income and expense both have negative impact on ROA, confirming the relevance of traditional financial indicators in addition to their green efforts. Despite green banking being proven as a way to enhance operational profitability, market and stakeholder dynamics resulting from awareness and maturing of stakeholder equity means that green banking has little, if any impact on returns on equity. Key Takeaways Add the Key Takeaways paragraph for Earnings Release Add the Key Takeaways to a Spotlight Card Add the Key Takeaways to a Sidebar with Links Add the Key Takeaways to the Press homepage