Investigating the Antecedents of Green Finance and Their Role in Enhancing Sustainable Performance of Financial Institutions in Saudi Arabia

Abstract

The growing urgency of climate change, environmental sustainability, and financial resilience has led to increased global interest in green finance as a tool for achieving sustainable economic development. However, the existing research lacks a comprehensive empirical framework integrating multiple green finance mechanisms and examining their collective influence on the sustainable performance of financial institutions across environmental, social, and economic dimensions, particularly in emerging economies. This study is grounded in institutional theory, the resource-based view, diffusion of innovation theory, and the cost-efficiency approach. It develops and empirically tests a model in which green bonds, green bank loans, carbon credit financing, sustainable agricultural financing, green microfinance, energy-efficient financing, renewable energy financing, and environmental impact financing determine green finance. Green finance, in turn, enhances the sustainable performance of financial institutions across environmental, social, and economic dimensions in Saudi Arabia. This study employs Partial Least Squares–Structural Equation Modelling to analyse survey data collected from 384 employees in Saudi financial institutions. The results show that all eight green finance mechanisms significantly contribute to green finance, which in turn significantly enhances the sustainable performance of financial institutions. This study makes a significant theoretical contribution by developing and validating measurement items for nine green finance constructs and empirically testing a comprehensive model that explains how green finance mechanisms enhance the sustainable performance of financial institutions. This study provides one of the first comprehensive empirical analyses in Saudi Arabia of green finance’s role in promoting sustainable financial strategies aligned with the United Nations Sustainable Development Goals. The findings offer a strong foundation for future research and provide valuable insights for policymakers, financial regulators, and industry leaders in advancing sustainability-focused financial decision-making and policy reforms.