Environment, Development and Sustainability

https://doi.org/10.1007/s10668-020-01206-x

Adoption of green banking practices and environmental

performance in Pakistan: a demonstration of structural
equation modelling

Alam Rehman1 · Irfan Ullah2 · Fakhr‑e‑Alam Afridi3 · Zain Ullah4 ·

Muhammad Zeeshan5 · Arif Hussain6 · Haseeb Ur Rahman7

Received: 17 August 2020 / Accepted: 26 December 2020

© The Author(s), under exclusive licence to Springer Nature B.V. part of Springer Nature 2021

Abstract
Banking industries are blamed to be among the major factors that affect global climate
change both directly and indirectly. The green banking concept has emerged in the last
decade to trigger the adverse impact the banks put on a healthy environment. However,
research regarding the adoption of green banking practices in developing economies, espe-
cially in Pakistan, is scarce. While environment friendly businesses are promoted by the
government including in the banking industry. Green banking practices not only adopted
by the business operations but also to practice it at policy-making level. It also encourages
green project financing to ascertain environmental efficiency. Based on SRI theory, this
study investigates the relationship between green banking practices and their direct and
indirect impact on environmental performance. Structural equation modelling approach has
been adopted to test the relationships of variables of the study. The impact of the green
practices has been recognized much greater and influential in promoting green environ-
ment regarding policy-making and investments in green projects. Results reveal that there
is a significant influence of policy, daily operations, and investments on the adoption of
green banking practices. Interested parties can adopt the study proposed framework to
access and identify the factors which can promote justified level of green banking practices
in the country. Moreover, this study may help in providing rich updated literature in green
banking to speed up future research in the same area.

Keywords Environmental performance · Green banking practices · Pakistan · Structural

equation model

1 Introduction

The idea of human prosperity perhaps turns into a wild card by holding various environ-
mental issues which we are just starting to realize. Increased population is coupled with
exponentially rising consumption of viable energy resources and uncertain economic

* Irfan Ullah
irfanecon@nuist.edu.cn
Extended author information available on the last page of the article

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situation. That is why, the developing young nations will control the world’s future in many
senses. We will go for skiing if there is snow and vacation in Mexico if there is not a
pandemic virus outbreak, drive to Disney World if it is not lockdown, and play cricket if
the temperature is not 110 degrees. Hayward (2013) conducted a study on 1000 CEO’s
across the world, and the results indicated that 67% believe that the global economy would
not meet the demands for the rapidly growing population and failed to address the global
sustainability challenge. Ecological inequality in the last few decades is believed to be
the result of industrialization, and in recent years, business organizations are increasingly
viewed as the cause of environmental, social, and economic issues and perceived to be
prospering at the greater expense of local communities (Porter and Kramer 2014). Man-
made gases such as hydrofluoric carbon, nitrous oxide, carbon dioxide, and methane are
found to be responsible for the distortion of climate. It has made a significant impact on
forestry, biodiversity, water resources, agriculture, dry land, and human health. The world
is very much concerned about environmental issues in the global economy (Nath, Chaud-
huri, and Birch 2014).
Green economy was described by United Nations Environmental Program UNEP
(2014), as the financial activities that result in human improved well-being as well as social
equity, which results in significantly reduced environmental risks and ecological scarci-
ties. Simply green economy term is resource efficient, low carbon, and socially inclusive.
Industrialization around the globe has triggered the pursuit of ever-increasing needs and
demands of the population, and it has become symbolic of prosperity and development
of an economy. But, on the other hand, it has resulted in the exploitation of the natural
environment, which in turn has disturbed the ecological balance. The disturbance in eco-
logical balance has adversely impacted the human and its surrounding environment. The
recent industrial disasters and natural disasters that occurred in the last three decades were
directly or indirectly linked with uneven industrialization. Acknowledgment of environ-
mental issues as global phenomena exerted pressure on different industries including finan-
cial services sector, typically banks to adopt green environmentally friendly banking. This
creates further obligations and opportunities for banks. However, the operational activi-
ties of traditional banks are not related to the environment but their environment-friendly
approach would have a substantial external impact on the overall environment. But banking
sector is the largest consumer of resources such as paper and electricity through exten-
sive networks of branches and automated teller machines (ATMs). However, through
digital banking technologies and supporting projects of greenhouse prepared in house can
contribute to minimizing the adverse environmental impact to the greater extent. Hence,
there is a greater need for adoption of green banking practices in daily operation, financ-
ing strategies, investment policies, and encouragement of CSR practices in developing
economies (M Ikram et al. 2019). According to S. C. Bihari and S. Pradhan (2011), green
banking practices contribute to green environment by reducing CO2 emissions footprints
that resultantly drive companies to prefer clean energy technologies. Since banking sec-
tor is one of the major sources of financing to many industries and businesses, it creates
huge responsibility and accountability for banks. Green banking practices not only result
in greater corporate, environmental, and social benefits, but can also foster a competitive
advantage in terms of customer retention. It helps in creating a mechanism and switching
the client’s interest and intention by encouraging the practices of green banking approach
rather than focusing on the same old conventional mindset. Banks are the major economic
agents influencing the industrial sector for lending and financing the projects. However, as
society today is more concerned and aware of the environmental issues, there is a need for

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Adoption of green banking practices and environmental…

banks to adopt green strategies in their operations to obtain competitive advantage (Nath
et al. 2014).
Banks are the major economic agents which play an influencing role (Nizam et al.
2019). According to Thombre (2011), encouraging environmentally accountable invest-
ments and lendings must be the prime responsibilities of banks. If a bank finances environ-
ment-polluting industries and businesses, that bank will contribute to environmental deg-
radation, which will create health concerns (Nizam et al. 2019). On the other hand, banks
should play a proactive role in making the industry liable to invest in technologies and
management systems that could be environment friendly. (Md Masukujjaman and Akter
2013). Thus, banks can act as unethical organizations due to the disbursement of loans to
those organizations, which have environmental concerns (Goyal and Joshi 2012; Muhamat
and Jaafar Thombre 2011).
Banking sector is playing a vital role in developing economies to facilitate and adopt
environmentally friendly business practices, by acknowledging the importance at corpo-
rate, social, and environmental level (Mohammad Masukujjaman et al. 2017). Green bank-
ing practices adoption helps in customer retention, which may add to an ideal environ-
ment (Iqbal, Nisha, Rifat, and Panda 2018), and green banking policy instruments consist
of micro-prudential policy, macro-prudential policy, credit allocation policy, and market-
making policy (Dikau and Volz 2018). The effectiveness of these policies is premature due
to lack of current data and methodologies to measure between developed and developing
countries for comparison of performance. Some researchers analyse the performance of
green credit policy of China, but these studies are limited and show mixed results, mainly
about the implementation of the policy or goals achievements (Aizawa, Yang, and Devel-
opment 2010; Jin and Mengqi 2011; Ren et al. 2016). We developed our conceptual model
in the light of the above studies, which have explained the contribution of policy, opera-
tions, and investment in the paradox of green banking. However, this is still a novel phe-
nomenon, and the adoption of green strategies is confronted to many challenges in devel-
oping economies regarding formulation and implementation of appropriate strategies
to effectively address the important globally acknowledged healthy and environmentally
friendly practices.
Pakistan has also witnessed numerous environmental issues (Bukhari et al. 2020), due to
the rapidly increasing population, unplanned use of efficient technologies, and poorly man-
aged waste management system. In order to achieve international standards, the SBP (State
Bank of Pakistan), in October 2017, launched a series of guidelines. The main objectives
include: (1) green banking policy development, (2) the adoption of a financial mechanism
that allows bank to finance in the environmentally friendly industrial sector, (3) the incor-
porate banking green practices in an internal control framework, and (4) the introduction
of green exposure limits on all those industries paving ways for hazardous environment.
However, a question arises to apply the above guidelines as to what aspects the concept
of green banking promotes or green banking even a helpful tool to be used as a mitigat-
ing tool in such environmental hazards to minimum level (Bukhari et al. 2020). The green
banking is an emerging concept in the Pakistan banking sector. The State Bank of Pakistan
defined green banking as a way forward to promote environmentally friendly practices that
assist banks and customers in reducing their carbon footprints (SBP 2015). Different strate-
gies have been initiated since 2017, to promote environmentally friendly business prac-
tices with a view to ascertain effectiveness in the reduction of the CO2 footprint from the
banking sector (Bukhari et al. 2020). Online banking, paying online bills facilities, and
other financial transaction, i.e. increasing the encouragement of online digital activities,
are few of the banking technology contributing to the green environment (Miah, Rahman,

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and Mamoon 2020). However, regarding corporate policies, employee development, and
customer-related operations, there is still a lack of research and awareness (Bukhari et al.
2020). Therefore, this study aims to investigate how green banking practices in Pakistan
are contributing to green environment and moreover to highlight the important area of
future research in this novel but mandatory phenomenon of today’s greater concern of the
stakeholders and society.
The rest of the paper is arranged as follows: Sect. 2 summarizes the review of the previ-
ous relevant literature, Sect. 3 explains the theoretical background and framework of the
study, Sect. 4 explains the research methodology, Sect. 5 explains the empirical results fol-
lowed by discussion, and Sect. 6 concludes the study.

2 Literature review

Green banking is a result of the direct and indirect adverse impact of the conventional bank-
ing ideology on the environment (Mohammad Masukujjaman, Siwar, Alam, Bashawir, and
Er 2016); this novel phenomenon gained momentum and attention in recent years (Choud-
hury, Salim, Al Bashir, and Saha 2013). However, the adoption of green banking practices
in developing countries in particular gained some importance in 2012, with the initiative
of the International Finance Corporation (IFC), the establishment of Sustainable Banking
Network (SBN) to facilitate green banking in developing countries. As per IFC (2019), 15
countries out of 35 have successfully initiated at their national-level guidelines, principles,
and policies about green banking practices. Banking industry is one of the most impor-
tant stakeholders and concerns of interest for parties in green banking concept, because of
its direct and indirect adverse impact on the quality of environment. However, according
to Goel and Saunoris (2016), banks’ indirect effects are major concerns as compared to
direct effects. In developing economies, banks are considered as the main source finance
for the industry. As per statistics, international banks contributed more than 220 million
pounds to coal financing in the period 2005–2010. However, S. C. Bihari and S. Pradhan
(2011) argued that green banking is an ethical banking concept, focuses on environment
protection, and promotes social and environmental responsibility in the form of providing
environmentally friendly banking services. However, approaches towards green banking
policies tend to be different between developed and developing countries. Mandatory regu-
lations were introduced by many developing countries to formalize environmental policy
under the central banks and regulators. For example, India set specific quotas for lend-
ing sensitive climate sectors. But, in developed countries, the voluntary approach has been
taken on an industry-driven approach to address the environment-related financial risk as a
part of supporting a quality environment.
Green banking involves business practices that focus on social and economic develop-
ment of greater concern in healthy environment (Hart and Dowell 2011). According to
Shaumya and Arulrajah (2016), it directs bank’s daily operations to environmental account-
ability, which helps in the reduction of carbon footprints (Masud, Kaium, Hossain, and
Kim 2018). Researchers admire green banking practices for their many benefits, i.e. their
contribution to protecting both internal and external risk (Bowman 2010; Nath et al. 2014),
improving bank image and source of competitive advantage (Nath et al. (2014), and, with
increased operating efficiency, leading to upsurge both economic and social development
(Tara, Singh, and Kumar 2015). Nizam et al. (2019) examine the environmental financing
and access to finance on the sector financial performance globally by taking data of 713

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banks covering 75 countries for the period 2013–2015. Their finding suggests positive
effects of access to finance on banks financial performance analysed performance through
management quality and loan growth. However, despite all benefits, the adoption of green
banking still is in very novel and infancy stage in developing economies and encounters
many barriers. It includes lack of updated knowledge, scarcity of global measurement tool,
and being specific to the country contextual environment, technological advancement, and
adoption. These result in low level of attraction for clean energy projects and less cost effi-
ciency in cost of adoption for green banking practices (Owusu-Manu, Pärn, Donkor-Hyia-
man, Edwards, and Blackhurst 2016). The above discussion suggests that green banking
focuses on the reduction of bank adverse direct and indirect environmental impacts, by
encouraging efficient ways of transformation regarding daily internal operations, to encour-
age green investment projects. Schultz and Research (2010) explained green banking con-
cept as a way forward to promote environmentally friendly practices in banking activities,
which aims to reduce footprint of carbon and to encourage customers based on these
unique practices. Further, it was explained by Institute for Development & Research in
Banking and Technology (2013), referring green banking as the adoption of practices and
guidelines by banks for sustainable development of both economic and quality environ-
ment. However, the green banking concept is not just a concern of one party, it is stake-
holder initiative taken for a healthy environment (Ritu and Saha 2014). The previous litera-
ture is dominated by the philanthropic approach in terms of green banking applications;
however, there is still a lack of consensus on a single uniform definition. Many researchers
acknowledge the benefits of green banking as the greater good for the well-being of the
society and by motivation behind the growing environmental impact (Bai, 2011; Singh and
Singh, 2012). S. C. Bihari and S. Pradhan (2011) asserted that green banking concept not
only represents the promotion of social responsibility, but considers its accountability by
evaluating project of the present and future environment implications before financing.
These social and environmental aspects of green banking were further supported by many
researchers (Bhardwaj and Malhotra 2013; Jha and Bhome 2013; Mishra 2013). Jan, Mari-
muthu, bin Mohd, and Isa (2019) analysed Islamic banking perspective sustainability,
using data for the period 2008–2017. Their results showed that sustainability practices have
a significant positive nexus with the Islamic banks financial performance indicators as well
as shareholders’ perspective. However, from market perspective they found an insignificant
financial performance. Similarly, Hummel, Laun, and Krauss (2020) conducted study
based on the 50 European bank samples and confirmed that only management topic is posi-
tively related to the environment and sustainability performance, while the same is not to
risk management practices. This supports the findings of the study of Nizam et al. (2019),
who noticed a positive impact of financial growth through loan growth and quality of man-
agement. M Ikram et al. (2019) argued that adoption of EMS can be the organization’s
effective tool to address social-, economy-, and environment-related issues. Moreover, it
results in improved CSR activities. Bukhari et al. (2020) argued that in banking sector,
green practices have been triggered due to their adverse potential role in degradation of
global environment and natural resources depletion and further added that a number of
banking operations to natural environment are potentially harmful, posing adverse effects
indirectly and directly. Their study follows adoption of green banking journey in banking
industry of Pakistan. They emphasized the greater need of green banking adoption in
developing economies. However, Muhammad Ikram, Sroufe, Rehman, Shah, and
Mahmoudi (2020) suggested that the adoption of QES (Quality Environment and Social)
standards has a significantly positive effect on goods exports and services, especially in
developing countries. Jebarajakirthy and Shankar (2020) argued that in m-banking

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adoption, banks have to focus more on making online transaction environment more con-
venient and to encourage its adoption in the community. Marketing plays an important role
in the promotion of environmentally friendly business practices (Kassarjian 1971), and this
has contributed to the green marketing concept (Polonsky 1994). It is based upon the envi-
ronmentally friendly strategies to meet the need and desire of the stakeholder’s quality
environment (Jain and Kaur 2004). Traditional marketing is linked to green marketing with
social marketing concept that seeks to identify and promote green behaviour and attitude in
green products and idea development, whereas green marketing is the promotion of socially
responsible strategies to adopt green practices for the greater well-being of the healthy
society (Bahl 2012). S. C. Bihari and S. J. J. o. T. M. Pradhan (2011) argued that green
banking is the prerequisite for being socially responsible in encouraging the overall envi-
ronment. Likewise, Muhammad Ikram et al. (2020) also validated the contribution of green
practices to the environment. But, Borgers and Pownall (2014) argued that due to environ-
mental and social benefits, investors show a positive attitude towards SRI. Borghesi, Hou-
ston, and Naranjo (2014) considered green banking practices as a key approach by firms to
build a positive image and help in the retention of employees. Likewise, Riffat, Powell, and
Aydin (2016) asserted that green banking helps firms, customers, and government to
strengthen their relationship. Similarly, Bauer, Eberhardt, and Smeets (2017) stated that in
addition to environmental and social advantages, it has a significant influence on stake-
holders investment decisions. Reporting similar beliefs, Riedl and Smeets (2017) argued
that it can enhance stakeholder’s willingness to social benefits at their portion of financial
returns. However, Z. Chen, Hossen, Muzafary, and Begum (2018) demonstrated that green
banking is focused on the greater good of the society in which it operates. In terms of daily
operations of the banks, Shaumya and Arulrajah (2017) acknowledged green banking as
the adoption of practices in daily operations with minimum usage of energy consumption
and promoting E-banking practices to reduce cost of operations in solid form like paper.
However, these interconnected activities if performed effectively at a greater level may lead
to less transportation and other scarce saving like water. A case of Pakistan’s manufactur-
ing companies were analysed by M Ikram et al. (2019), which revealed that those manufac-
turing companies that incorporated EMS in their IMS have much better show in corporate
performance as compared to those companies that do not practice EMS. This helps in
improving both corporate sustainability and corporate business. They further suggested
that EMS can be a vital tool for achieving long-term corporate sustainability goals.

3 Theoretical background and framework

Bose and Gupta (2017) argued that there is a lack of research on the theoretical perspec-
tive of green banking adoption. In this regard, further researches are needed, especially in
developing economies to examine and better understand the determinants of green bank-
ing adoption (Tu and Dung 2017). According to Mohammad Masukujjaman et al. (2016),
developing countries face barriers like insufficient government support, lack of practical
implementations, lack of awareness, and higher adoption cost. Bowman (2010) further
pointed out the limited literature resulted in lack of understanding among policy-makers
and industry in mitigating environmental climate change and encouraging low-carbon-
emission economy. Such lack of information led to the research gap to be filled out to facil-
itate green banking adoption in developing economies (Bose and Gupta 2017).

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Adoption of green banking practices and environmental…

In legitimacy theory, the literature being in practice shows when CSR and environ-
mental practices are hard to differentiate, those are adopted by those organizations which
have philanthropic approach and interested in those practices which have been empirically
tested. However, this theory mainly relies on social and environmental concepts. But, the
purpose of CSR is to focus on business operations ethically by corporation’s strategies.
However, due to the controversial issues like demographic and contextual, one cannot dis-
tinguish and rely on the narrow background of emerging green banking, which is linked
closely to rapid industrialization and the increasing interest of the use of green technology.
The other theory which gets attention and dominance in the previous literature is a sus-
tainability theory which originated back to 1972, when UN initiated strategies with the
help of international union to limit growth-based corporate development strategies. This
provides a foundation and benchmark worldwide for sustainability business practices.
However, it mainly focuses on limited feedback from human and tries to solve the working
environment. However, it helps in recognizing ecological problems to be addressed prop-
erly and considers in future strategic policy formulation. Socially responsible investment
ethically motivated the need for investment, which originated back to the ancient days. In
this regard, Renneboog, Ter Horst, and Zhang (2008) stated no consensus regarding defini-
tion of SRI theory. Chatzitheodorou, Skouloudis, Evangelinos, and Nikolaou (2019) argued
that different terms like ethical, social, sustainability, and investments have been inter used
behind the logic for SRI theory. While van Dooren and Galema (2018) stated that SRI
theory focuses on values of individuals and well-being of society as an important factor in
consideration for investment choice evaluation (Hernandez and Hugger 2016), Sturm and
Field (2018) also considered SRI as the impact of social investments for the enhancement
of social benefits from investors of the community.
While explaining the paradox of SRI theory, Newell and Lee (2012) viewed SRI theory
as encouraging the use of both financial and well-being goals, especially among micro-
finance institutions, and socially motivated firms, to overcome the rising environmen-
tal problems, creation of jobs, and rural and urban development. Chatzitheodorou et al.
(2019) stated that empirically SRI theory has been considered in dimension of environ-
mental, social, and sustainability. Newell and Lee (2012) stated that SRI theory is using
finance, with a focus on social dimension to achieve both financial and social values and
goals simultaneously (Bennett and Iqbal 2013; Sparkes 2001). However, Browner, Jupi-
ter, Krettek, and Anderson (2014) argued that banks have little information available with
them in their green projects investments, due to certain barriers like lack of documenta-
tion and green energy use. This may discourage banks to invest. But customer expectations
are greater today as they see other prospects of their amount deposited and expect greater
social good. Winding up, banks have a significantly direct and indirect impact on environ-
ment (Meena et al. 2013). It resulted in greater pressure from stakeholders, increasing their
interest in healthy environment (Shakil and Tran 2014). However, banks lack sufficient
information and data for the facilitation of green banking adoption. This has led to an iden-
tification of a research gap and call for increased research on green banking adoption in
the developing countries (Bose and Gupta 2017; Masud et al. 2018; Oyegunle and Weber
2015; Shaumya and Arulrajah 2017; Smith 2016) (Fig. 1).
There are very few known studies available in the existing literature on the paradox of
green banking on environmental performance in developing economies. In Pakistan, par-
ticularly this area needs to be investigated and explored more seriously. Therefore, this
study aims to investigate the green banking practices adoption in the selected banks, for the
purpose to fill the empirical gap in the existing body of the literature. Moreover, empiri-
cal research is still in initial stages at banks in Pakistan, and there is a lack of evidence

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Fig. 1  CFA model output

regarding the exact number of banks which have already started or have taken initiatives
towards green banking practices. In the light of the above discussion, this study observed
the relationship of two main research variables, which include environmental performance
as the dependent variable and green banking practices as independent variables. Based on
the theoretical background and review of the previous literature, the main hypotheses have
been formulated as follows:

H1 Bank polices for green environment have a positive effect on banks green
practicesadoption.

H2 Adoption of green banking practices has a positive effect on bank daily operations.

H3 Banks investment decision in green projects has a positive effect on green

bankingpractices.

4 Research methodology

4.1 Research design

This study aims to investigate the green banking practices adoption in the commercial
banking sector in Pakistan. For data collection, a survey questionnaire was developed, and
the study was conducted in Peshawar District, District Mardan, and District Kohat, in the
province of KPK, Pakistan. We applied structure equation modelling to test the hypothesis.

4.2 Data analysis technique

We used structural equation modelling (SEM) technique as it provides us with an excel-

lent tool for an initial evaluation of the differences of validity and reliability in measur-
ing instruments among the wide selection of population groups (Raines-Eudy 2000).
Moreover, it is a powerful quantitative data analysis technique used for analyzing theo-
retical relationships in structural models, containing latent or/and unobserved variables,

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Adoption of green banking practices and environmental…

and also can be tested as a combined model in factor analysis, called measurement
model (Meyers, Gamst, and Guarino 2013; Tabachnick et al. 2007). However, for any
proposed mediation analysis, we conducted the recommended two-step procedure in the
spirit of Anderson and Gerbing (1988), to investigate the proposed mediation analysis
of the model. CFA was used in the first step for the measurement model with the rec-
ommended fit to the data. Once it was achieved, in the second step we tested structural
equation modelling.

4.3 Sampling and participants

The sample is a subset of the entire population, and inferential statistics is to generalize
from the population (Cooper and Schindler 2008). Among the total number of banks in
three districts, i.e. Peshawar, Mardan, and Kohat, we used convenient sampling techniques.
We collected data from banks employees occupying different positions in the banks. We
targeted those banks branches situated in the above-mentioned cities of KPK. According
to Lee (2011), for structural equation modelling analysis, the recommended sample size is
150–400. Similarly, Nunnally (1978) argued that sample size of 100–150 is a reasonable
size to be used for significant statistical results. Thus, this study distributed self-adminis-
tered questionnaires among 250 respondents, who are employees of retail banks at mana-
gerial level in Pakistan, and analysed the data of 200 respondents, due to the reason that
these questionnaires were fully completed. However, due to the pandemic virus outbreak
throughout the world and precautionary measures, i.e. lockdown and social distancing, we
conducted the data collection task, with the help of our research students and made them
accountable and trained to abide by the SOPs of WHO. The survey was conducted in three
districts of KPK, namely Kohat, Mardan, and Peshawar. The reason behind these districts
was as the maximum number of banks operating there and convenient regarding access and
SOP’s procedures. For positive gesture, we also provided one 20-ml handwashing sanitizer
to ordinary executives in banks and with a pair of disposable gloves with a face mask to
the Bank Managers only. This indeed helped us in gathering rich data information as well
as contributed to prompting ethical aspects of research study. However, it should be noted
that no other party funded the expenses except the authors of this study and intension was
purely for following the SOP’s and prompt clean healthy environment.

4.4 Instrument and variables measurement

The survey method issued, and data have been collected through an adopted survey ques-
tionnaire consisting of demographic and multiple items for each of the three research vari-
ables of the study. The study questionnaire was adopted, was modified from the available
literature, and has been made in context of developing countries. The main theme of the
designed questionnaire consists of four sections: demographic information, green bank-
ing policy implementation, daily operations, and customer awareness. The respondent’s
information on gender, age, education level, and experience in number of years in banking
industry has been recorded in demographic section. The green banking practices in daily
operations section consisted of adopted seven statements from work of previous studies (H.
Chen, Chen, and Gerlach 2013). Six statements were adopted to test banks policy regard-
ing green banking, while eight items were adopted from the work of Igbudu, Garanti, and

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 A. Rehman et al.

Popoola (2018), to measure firm investments in green projects. All the survey questionnaire
questions have been designed with a five-point Likert scale: 1 = strongly disagree, 2 = disa-
gree, 3 = neutral, 4 = agree, and 5 = strongly agree, to gather data from the respondents.

5 Empirical results

5.1 Demographics analysis and frequency distribution

Table 1 represents that 85% survey respondents are male, while female respondents share
15% in the total survey respondents. Overall 4.5% of the respondents are below the age
of 25, 20% are 26 to 35, 52.5% are 36 to 45, 22% are 46 to 55, and 3% are 56 years and
above. Regarding education, 8% of the respondents have doctorate degree, 60% hold mas-
ter’s degree, 35% have bachelor’s degree, and 2.5% have other qualifications. Regarding
the number of years’ experience in banking sector, 5% of the respondents indicated to
have been working with their bank for below 3 years, 35% are working for 4–6 years, 40%
respondents are working for 7–9 years, 17.5% are working for 10–14, and 2% are working
in the banks for 15 years and above.

5.2 Reliability analysis and sample adequacy checks

We performed Cronbach’s alpha test to examine data reliability (Cronbach and War-
rington 1951). The Cronbach’s alpha values of all constructs, i.e. policy, operations, and

Table 1  Respondents profile Frequency Per cent

Gender
Male 170 85
Female 30 15
Age (years)
Below 25 05 4.5
26–35 40 20
36–45 105 52.5
46–55 44 22
Above 55 06 3
Education qualification
PhD 05 8.0
M.Sc. 120 60
B.Sc. 70 35
Others 05 2.5
Years of experience
Below 3 10 5
4–6 70 35
7–9 80 40
10–14 35 17.5
15 and above 04 2

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investments, are in acceptable ranges: 0.97 for policy, 0.854 for operations, and 0.846 for
investments. These values were validated with the findings of Cortina (1993) and Fornell
and Larcker (1981), who suggest that it should not be less than 0.7. We also checked the
sufficiency of the sample size using Kaiser (1974), measure of sampling adequacy, and
Bartlett’s test of sphericity (Snedecor and Cochran 1989). The results demonstrated values
above 0.6 as being KMO value, which confirmed that true sample size has been used in
the study (Tabachnick, Fidell, and Ullman, 2007). The Bartlett’s test of sphericity’s value
should be significant (i.e. the Sig. value should be 0.05 or smaller). In our study, the KMO
value is 0.768 and Bartlett’s test value is highly significant (P = 0.000); therefore, factor
analysis is an appropriate choice and further analysis is advised to be conducted (Bolten
1989).

5.3 Confirmatory factor analysis

We performed CFA to test the adequacy of the measurement model. Low factor loadings
and high cross-loading items of the questionnaires have been eliminated for the achieve-
ment of overall prescribed requirements, for better fit (Hair, Ringle, and Sarstedt 2011).
In this study, under-researched variables’ internal reliability is benchmarked with the
Cronbach’s alpha value test, while standardized factor loading, composite reliability (CR),
average variance extracted (see Table 2), and the model fit indices are achieved for the
convergent validity of the study. We then compared the AVE with squared inter-construct
correlation (SIC), to ascertain discriminant validity.

5.4 Convergent Validity

Values in Table 2 represent the satisfactory convergent validity. Cronbach’s alpha values
are all acceptable and range from 0.84 to 0.94, as per the study of Cortina (1993), who
states that it should not be less than 0.7, whereas factor loading standardized values

Table 2  CFA measurement model

Constructs Measure Factor loading

Policy AVE = 0.713, CR = 0.908, α = 0.907

GBP04 0.90
GBPO3 0.87
GBPO1 0.80
GBPO2 0.81
Daily operation AVE = 0.627, CR = 0.867, α = 0.854
GBDO3 0.95
GBDO1 0.72
GBDO2 0.85
Investment AVE = 0.690, CR = 0.866, α = 0.846
GBCU2 0.74
GBCU3 0.68
GBCU1 0.63

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 A. Rehman et al.

for all the observed items are above the recommended value, i.e. 0.6, as suggested by
Bagozzi and Yi (1988). In addition, as for as convergent validity is concerned, all items
should have factor loading value above 0.60 to confirm the convergent validity (Fornell
and Larcker 1981), while composite reliability (CR) values reported are also greater
than the recommended benchmark value of 0.7, suggested by Hair et al. (2011). Further,
supported by the AVEs value above 0.5, which is the cut-off point (Hair et al. 2011), in
our study case, the AVE is greater than 0.50, which suggests an adequate convergence
level.

5.5 Discriminant validity

This validity is achieved when the measurement model is free from redundant items (Hair
et al. 2011). Another requirement for discriminant validity is the correlation between exog-
enous constructs which should be less than 0.85 (Bentler 1990). Table 3 shows discrimi-
nant validity results. Hence, our reported results validate the recommended values of previ-
ous researchers. Moreover, discriminant validity is obtained when no squared correlation
(off-diagonal value) is greater than the AVEs (on-diagonal value), which has been previ-
ously validated (Fornell and Larcker 1981).
Table 4 indicates the goodness of fit results. The measurement model fit indices as
per recommended values have been obtained accordingly as: χ2/df = 1.831 (Wheaton
et al. 1977), GFI = 0.94, and TLI = 0.93, which should be more than 0.90 (Joreskog
and Sorbom 1984), CFI = 0.97 (comparative fit index), which should be more than 0.90
(Bentler 1990), and RMSEA = 0.06 (root mean square error of approximation), which
should be less than 0.08 (Browne, Cudeck, Bollen, and Long 1993).
Figure-2 Structural Model.
Results from the structural relationship, as given in Table 5 and Fig. 2, indicate that all
the three hypotheses H1, H2, and H3 are supported. This implies that there is a statistically

Table 3  Discriminant validity Construct Policy Operations Investments

Policy 0.844
Operations 0.151 0.792
Investments 0.115 0.112 0.831

Table 4  Goodness-of-fit indices CMIN/DF RMSEA GFI CFI TLI NFI

1.831 0.06 0.94 0.97 0.93 0.94

Table 5  Regression weights

Estimate S.E. C.R. P Label

Investments <– Policy 0.115 0.063 1.618 0.009 Supported

Operations <– Policy 0.140 0.071 1.833 0.008 Supported
Operations <– Investments 0.096 0.075 1.355 0.000 Supported

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Adoption of green banking practices and environmental…

Fig. 2  Structural path analysis output of the research model

significant impact of green banking practices on policy-making (β = 0.115, p = 0.009),

which is in line with previous related findings (Al-Ahmad et al. 2012). Green banking
practices have a significant impact on bank’s daily operations (β = 0.140, p = 0.008), which
means green banking practices also positively significantly affect bank green projects
investments (β = 0.096, p = 0.000), thereby supporting the findings of a related study, which
also predicted a similar relationship of the variables (Shantha 2019).

6 Discussion and conclusion

The study aimed to examine green banking practices among selected banks in Pakistan.
Data were analysed by using factor analysis techniques and structural equation model-
ling for the validity, reliability, and structural relationship of the variables of the research
model. The findings were in line with many previous international studies (Bukhari et al.
2020), and the results indicated a significant impact of all three factors identified on the
overall green banking practices. However, due to a rapid technological change and unstable
economic circumstances, there is still an unlearned picture of the ground’s facts in numbers
to verify. The other factor which may affect is the adoption of the online banking system
which is a determinant to online security and other factors like trust. The last few decades
have witnessed stakeholders’ increasing interest and concerns about banks for environmen-
tally friendly practices adoption (Julia et al. 2016). However, this shift in banking industry
also requires underlying ideology change, especially in developing economies (Bukhari
et al. 2020). However, one most important finding of this study is the limiting role of the
middle-level managers in decision-making in two dimensions, policy-making and invest-
ment in green projects. It was already identified in the literature (Zahra and Garvis 2000).
While in terms of daily operations, this study noticed the dimension of risk-taking as an
internal factor and very much depend on the bank’s branch location and other contrib-
uting factors. This was also found by Burgelman (1983), who confirmed and supported
the same. However, we also noticed that the lack of guidelines at policy level makes the
need to be more environment protective for each project that bank finances. This was also
recommended in a very relevant study (Jeucken 2001), the positive relationship among
the research variables suggests that with the improved environmental performance, the

13
 A. Rehman et al.

financial institutions have increased their financial performance as well, and similar find-
ings have been reported by previous researchers (Hamilton 1995).
Different strategies have been initiated since 2017, to promote environmentally friendly
business practices to play an important part in the CO2 footprints reduction from the bank-
ing sector in Pakistan. Online banking, paying online bill facilities, and other financial
transactions, encouraging online digital activities, are few of the banking technologies
contributing to the green environment. However, in regard to corporate policies, employee
development, and customer-related operations, there is still a lack of research and aware-
ness. Therefore, this study aimed to investigate how green banking practices in Pakistan
are contributing their role in the green environment. Moreover, to highlight the important
area of future research in this novel but mandatory phenomenon, the banking industry
role is greatly dependent on corporate-level policy and interest in green practices; how-
ever, with changing lifestyle and advancement in information- and communication-based
society, people are more aware today and expect environmentally friendly practices from
any business firm. This highlights that solid policy guidelines at national level can make
banking sector to play more fruitful role in promoting green environment by encouraging
investment in those projects which are environmentally friendly. Future studies can com-
pare the banking sector of various countries in the same region to assess the magnitude of
differences regarding their prevailing green practices. Moreover, this research can also be
further extended with an extended sample size, and studies would be of a greater value if
comparison is made between conventional and Islamic banks or national and multinational
banks in the paradigm of green banking practices.

7 Implications of the study

7.1 Theoretical implications of the study

There are very few known studies available in the literature on the adoption of green bank-
ing practices and its impact on environmental performance in developing economies. In
Pakistan particularly, there is a need to investigate and explore this emerging phenomenon;
thus, this study investigates the green banking practices in the selected banks in Pakistan
for the purpose of filling the empirical gap in the existing knowledge and to provide rich
updated literature platform for the future research. Moreover, empirical research is still in
initial stages at banks in Pakistan, and there is a lack of evidence endorsed in the avail-
able research regarding the exact number of banks started or banks having taken initiatives
towards green banking system sustainability. This study suggests that banking sector in
Pakistan should focus on economic and environmental performance equally with a view to
address and minimize the harmful effect in broader environmental perspective.

7.2 Practical and managerial implications of the study

The study has implications for both bank management and academicians. By adopting an
appropriate methodology and ensuring reliability and validity, the study has a sound basis
for both theoretical and managerial implications. Empirically, this study explores the exist-
ing green banking practices adoption in Pakistan. The conceptual framework developed
through this study provides an effective tool to measure green banking adoption’s intention.

13
Adoption of green banking practices and environmental…

Based on this study, analyst and investors will have better understanding of sustainable
green banking practices adoption and how these practices affect banks performance in gen-
eral. This may be used in future valuation of bank’s green practices adoption and finan-
cial performance in Pakistan. This study also bears implications towards regulatory and
policy development in Pakistan banking sector. Policy drafters at institutional level should
endeavour to create environment which should be conducive to sustainability of green
practices in banking sector. Security and Exchange Commission of Pakistan should make
compulsory for all listed banks to disclose its green banking strategies in its final reports to
disseminate exact awareness of such practices to the stakeholders. Moreover, Central Bank
(SBP) must formulate robust strategic framework about green practices to be implemented
by banks, which can contribute to the environmental performance. In addition, government
should include as a clause the practices of green banking practices for financial institutions
in codes of corporate governance. This will substantiate banks’ practices of green banking
and will contribute to its environmental performance.

Acknowledgements Not applicable.

13
 A. Rehman et al.

Appendix
Part II: Information Regarding Reserach Variables

1 - Strongly disagree 2 - Disagree 3 – Neutral 4 - Agree 5 - Strongly agree

Questionnaire
S.no Statement 1 2 3 4 5
Part I: Personal Information
1.Daily Operations

01 My bank has initiatives to reduce paper usage and other wastage of

materials.
1. Bank
02 My bank has introduced energy-efficient equipment’s, system
solutions and practices.
2. Job position
03 My bank uses e-waste management practices.
3. Gender Male Female
04 My bank has environmental friendly banking practices (e-mail,
intranet, e-statements, online approval system, and etc.).
4. Age Below 25years 26-35years
05 My bank encourage customers
36-45years to use environmental friendly banking
46-55years
practices (e-statements, online transfer etc.).
Above 55 years
5.06 Educational
My bank regularlyP.hD arrange seminars workshop Msc/M-phill
to promote
environment friendly B.Sc.
Qualification practices in daily operations Others
07 My bank encourage employee to communicate through digital
6. Working
connectivity. 3 years and below 4-6 years
experience 7-9 years 10-14 years
Investments in green projects
15 plus years 1 2 3 4 5

08 My bank provides loans to environmental protection and energy-

saving related projects.

09 My bank implements certain independent and unique green

initiatives, projects, and etc. (e.g. tree planting).

10 My bank promotes and facilitates environmental oriented enterprises

through special grants, loans, and guidance.

11 My bank uses social and environmental management system or any

other mechanisms to evaluate all project proposals.

12 My bank promotes and facilitates environmental enterprises through

special sachems, loans, and guidance.

13 My bank promotes and facilitates environmental oriented guidance to

promote green projects.

14 My bank promotes and facilitates credit line to green projects.

15 My bank facilitates environmental oriented enterprises through

special grants, and other packages.

4.Banks Policy Related Practices 1 2 3 4 5

16 My bank involves in setting up green branches (energy-efficient

buildings/ green buildings).

17 My bank has an environmental (green) policy.

18 My bank has environmental-related agreements with relevant parties/

stakeholders (suppliers, customers, and etc.).

19 In my bank, head office level or top management involves

environmental protection-related planning and implementation.

20 My bank promote an environmental friendly policy at corporate level.

21 My bank purchases its stationeries, equipment’s and other items from

environmentally friendly companies (e.g. printers, computers, and
etc.)

13
Adoption of green banking practices and environmental…

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Affiliations

Alam Rehman1 · Irfan Ullah2 · Fakhr‑e‑Alam Afridi3 · Zain Ullah4 ·

Muhammad Zeeshan5 · Arif Hussain6 · Haseeb Ur Rahman7
Alam Rehman
amrehman@numl.edu.pk
Fakhr‑e‑Alam Afridi
falaam89@gmail.com
Zain Ullah
Uzain15@cusit.edu.pk
Muhammad Zeeshan
Abobakarmzk1@gmail.com
Arif Hussain
arifhussain@awkum.edu.pk
Haseeb Ur Rahman
drhaseeb@ustb.edu.pk
1
Faculty of Management Sciences, National University of Modern Languages, Islamabad, Pakistan
2
Reading Academy, Nanjing University of Information Science and Technology, Nanjing, China
3
Faculty of Management Sciences, Islamia College Peshawar, Peshawar, Pakistan
4
Department of Management Sciences, City University, Peshawar, Pakistan
5
College of Business Administration, Liaoning Technical University, XingCheng 125105,
Liaoning province, China

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Adoption of green banking practices and environmental…

6
Institute of Business and Leadership, Abdul Wali Khan University, Mardan, Pakistan
7
Institute of Management Sciences, University of Science and Technology, Bannu, Pakistan

13