An Evaluation of the prioritization of sustainable finance projects by commercial banks in Kenya

Abstract

Commercial banks in Kenya are increasingly turning their attention to sustainable financing, influenced by global trends in sustainable finance and increasing focus on environmental, social, and governance (ESG) factors. While this shift indicates a positive direction towards sustainable financing and resource availability to meet the country's sustainable development goals, it remains unclear whether banks have prioritized financing for renewable energy, green infrastructure, social impact projects and other sustainable endeavors. Therefore, this study aimed to achieve the following specific objectives: to determine the prioritization of sustainable finance projects by commercial banks in Kenya; to establish the effect of bank characteristics on prioritization of sustainable finance projects by commercial banks in Kenya and to examine the effect of managers’ perspectives on prioritization of sustainable finance projects by commercial banks in Kenya. The target population comprises 38 business development managers from commercial banks, as they play a direct role in implementing sustainable finance practices within commercial banks in Kenya. The collection of primary data was facilitated through semi-structured questionnaires, whereas secondary data was primarily sourced from the annual supervisory reports and audited financial statements of commercial banks for the year 2022. Descriptive and multi-linear regression statistical analyses used to analyze the collected data. The peer emulation theory of sustainable finance and the system disruption theory of sustainable finance provided anchorage to the study. The study is significant for policy managers in the financial sector, both at the commercial bank and government levels, and for scholars, the study contributes to a deeper insight on priority areas for sustainable project finance and factors influencing managers' perceptions of green financing beyond profitability considerations. The study established that commercial banks prioritized education, health and enterprise projects while bank characteristics and managers’ perception were all found to have significant effect on periodization of sustainable finance projects. It was recommended that commercial banks need to identify the various challenges in adaptation of sustainable finance to ensure that all drawbacks are addressed and that the Commercial Banks establish priority areas and projects for sustainable finance.