Sustainability Investments and Financial Performance of Commercial Banks in Kenya
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Date
2025-11
Authors
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Publisher
Kenyatta University
Abstract
Sustainability investments have become increasingly important in the global financial landscape, yet their impact on the financial performance of commercial banks remains contested, particularly in emerging economies such as Kenya. This study examined the relationship between sustainability investments and the financial performance of Kenyan commercial banks, focusing on four key areas: education programs, health initiatives, environmental investments, and economic empowerment programs. The research employed an exploratory design and analyzed secondary data from annual reports, sustainability reports, and financial statements of all ten commercial banks listed on the Nairobi Securities Exchange between 2018 and 2023. Panel data models, including pooled OLS and fixed effects regression, were used to examine the effect of sustainability initiatives on return on equity (ROE), with all hypotheses tested at a 95% confidence level. The study adopted a significance threshold of p < 0.05, meaning that any variable with a p-value below 0.05 was considered statistically significant in influencing ROE. The findings revealed that educational programs had a strong and statistically significant positive relationship with ROE, with correlation values ranging from 0.51 to 0.84. Environmental sustainability initiatives also showed a significant positive effect on ROE, with the fixed effects and pooled OLS models yielding coefficients of 0.325 and 0.352, respectively, highlighting the operational and reputational benefits of environmental sustainability. Economic empowerment initiatives also exhibited a small positive influence of (0.061).
Meanwhile health programs showed a slight negative but insignificant effect on ROE (- 0.064). This study suggests that while economic empowerment initiatives showed positive yet insignificant effects, these investments may require longer time horizons to realize measurable financial returns. This study concludes that sustainability investments in education and environmental programs contribute substantially to the financial performance of Kenyan commercial banks, while health and economic empowerment initiatives provide long-term societal benefits that may not immediately translate into monetary gains. These findings provide valuable insights for policymakers, regulators, and banking institutions in aligning sustainable banking practices with profitability goals
Description
A Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Business Administration (Finance) of Kenyatta University, November 2025.
Supervisor
1. James Gatauwa