Green Banking Practices in Operations and Lending Activities, Carbon Emission Reduction: Evidence from Commercial Banks in Nairobi City County, Kenya

This study examined the extent to which commercial banks in Nairobi City County, Kenya, have adopted green banking practices in their operations and lending portfolios, and the effect of these practices on carbon emissions reduction. A descriptive research design was employed, integrating both primary and secondary data. Descriptive statistics were used to summarize adoption levels, while regression analysis tested the impact of green banking practices on carbon emissions reduction. The study was conducted in Nairobi City County, where data were collected from 98 employees of 10 commercial banks (coded CB1–CB10) and key financial stakeholders across various management levels using structured questionnaires, and triangulated with 2023 sustainability disclosure reports from the same banks. The selection of a sample size -110 respondents was guided by the need to ensure a balance between statistical representation and practical feasibility. While a larger sample could enhance the generalizability of the findings, constraints such as the accessibility of respondents necessitated a more manageable sample. The study targeted all licensed commercial banks in Kenya, focusing on employees from the top ten banks, identified by the CBK’s CAMELS rating, that control over 80% of the Kenya`s banking sector market share. Insights were sought from key financial sector institutional stakeholders such as the Kenya Bankers Association, Nairobi Stock Exchange, FSD Africa, Central Bank of Kenya, and the International Finance Corporation. The findings revealed that 96% of the surveyed banks had adopted at least one green banking practice. The most common initiatives included environmental CSR (90%), customer awareness programs (88%), and the provision of green financing instruments (78%). Regression results confirmed a statistically significant positive relationship between green banking practices and carbon emissions reduction (β = 0.692, p < 0.001). These results demonstrate that green banking practices are widely adopted in Nairobi’s commercial banks and make a significant contribution to reducing carbon emissions. However, adoption remains uneven, with limited focus on customer-oriented products and inadequate reporting of Scope 3 financed emissions. To strengthen the role of banks in scaling sustainable finance, the study recommends embedding green practices into credit risk management, enforcing standardized sustainability reporting through regulatory frameworks, and expanding customer-focused green financial products across the sector.