Assessing the role of green finance in enhancing sustainability performance of financial institutions in Nepal using two stage PLS SEM and ANN approach

Green finance has emerged as a critical strategy for enhancing sustainability in financial institutions, particularly in developing economies like Nepal facing climate risks and environmental challenges. This study examines the impact of green finance initiatives—including awareness, product availability, regulations, customer demand and financial incentives—on the sustainability performance of Nepal’s financial institutions. Using a causal-comparative design, data from 420 professionals across Nepalese financial institutions were analyzed through a two-stage PLS-SEM and ANN approach to assess linear and non-linear relationships. Customer demand emerged as the strongest predictor of sustainability performance, followed by regulatory compliance and financial incentives, while awareness and product availability showed weaker but significant effects. The study confirms that market forces and policy frameworks collectively drive green finance adoption, with non-linear ANN insights revealing hidden regulatory influences. Policymakers should strengthen green finance regulations; financial institutions must prioritize customer-centric sustainable products and future research should explore sector-specific impacts and cross-country comparisons.