Banking on a greener tomorrow: the transformative influence of green banking, with green finance as the catalyst

Purpose The purpose of this research is to comprehensively investigate the influence of green banking (GB) on banks’ environmental performance (BEP) in Pakistan. This study further seeks to explore the mediating role of sustainable green finance (SGF) in shaping the connection between Islamic and commercial BEP. Design/methodology/approach This research adopts a quantitative approach, using a meticulously crafted questionnaire to explore the relationship within chosen Islamic and commercial banks in Lahore, Pakistan. A total of 328 responses were gathered using a five-point Likert scale. They were further analyzed through Hayes model in SPSS. Findings The results of this study indicate a noteworthy correlation between green banking adoption (GBA) and BEP. In addition, a significant association is observed between GBA and SGF, and SGF demonstrates a substantial relationship with BEP. Notably, this study reveals that SGF significantly mediates the relationship between GBA and BEP. Practical implications This study’s findings hold practical significance for both Islamic and commercial banks in Pakistan, suggesting that the adoption of GB positively impacts BEP. Moreover, recognizing the mediating role of SGF in this relationship provides actionable insights for financial institutions aiming to improve their environmental sustainability. This study recommends that banks prioritize and integrate green financing mechanisms into their operations to effectively enhance their overall environmental performance. Originality/value To the best of the authors’ knowledge, no prior research has been conducted to investigate the interplay between GB, banks’ environmental performance and the mediating influence of green finance within both Islamic and commercial banks in Pakistan.