Unravelling the influential factors shaping the adoption of Green Financing: Evidence from Banking Institutions in Sri Lanka

This study explores into the key drivers, challenges, and internal determinants influencing the adoption of green financing within Sri Lankan banking institutions. The study expounds the motivations and strategic frameworks supporting the incorporation of sustainability into banking practices through conducting in-depth interviews with the representatives from Domestic Systematically Important Banks (D-SIBs) in Sri Lanka. The findings pinpoint several key drivers such as regulatory frameworks, varying consumer preferences, shareholder involvement, and the quest for innovation. Regulatory transformations, colliding with targeted incentives and policies, have substantially driven banks toward sustainable practices. Simultaneously, changes in consumer behaviour and high environmental awareness have infused the development and introduction of innovative green financing products. Additionally, investor demands for increased transparency and the integration of Environmental, Social, and Governance (ESG) criteria have significantly influenced banks' strategic directions. This should be acknowledged as pioneers in sustainable finance and the necessity for competitive differentiation has been a key internal driver. Further, the results are aligned with the Resource Based View Theory and the Resource Theory of Sustainable Finance, underlining the vital role that firm-specific resources, competencies, and institutional framework contribute towards accomplishing sustainable finance goals. The study highlights that to promote the adoption of green financing initiatives, favourable regulations, increased consumer awareness, internal collaboration, capacity development, coordination of strategies, involvement of stakeholders, product innovation, risk management, and partnerships are essential. Hence, this study offers an in-depth comprehension of the intricate factors guiding the incorporation of green finance into Sri Lankan banks, with significant implications for decision-makers, financial institutions, and other parties involved in fostering green finance. Keywords: Competitive Advantage, Consumer Preferences, ESG, Green Finance, Regulations, Shareholder Activism