EXPLORING THE FINANCIAL IMPACT OF SUSTAINABILITY INITIATIVES IN EMERGING ECONOMIES: EVIDENCE FROM THE SRI LANKAN BANKING SECTOR
Gunasekera A.S.P. F1, Tharanga B. B2*, Dias S.N.R. F3
1,2,3Department of Banking and Finance, Faculty of Business Studies and Finance, Wayamba University of Sri Lanka
1pramudithagunasekera27@gmail.com, 2*buddhinith@wyb.ac.lk, 3fiona@wyb.ac.lk
2ORCID: https://orcid.org/0009-0003-5223-1361
ABSTRACT
The growing emphasis on sustainability in the financial sector has heightened interest in examining its impact on banks’ financial performance. Despite its importance, the relationship between sustainability practices and financial outcomes remains underexplored, with existing studies yielding inconclusive results. This research investigates the effect of sustainability initiatives on the financial performance of commercial banks, with a particular focus on the Sri Lankan banking sector. Specifically, it evaluates the influence of economic, environmental, and social sustainability initiatives on two key performance indicators: Return on Equity (ROE) and Return on Assets (ROA). Adopting a quantitative methodology, the study draws on secondary data extracted from the annual reports and sustainability disclosures of the six Systemically Important Banks (SIBs) in Sri Lanka for the period 2019–2023. Sustainability initiatives were measured by assessing the extent to which banks complied with sustainability guidelines outlined in the Global Reporting Initiative (GRI), classified under economic, environmental, and social dimensions. To analyze the relationship between sustainability initiatives and financial performance, the study employed descriptive statistics, correlation analysis, and multiple regression analysis. The findings reveal that economic and social sustainability initiatives have a significant impact on banks’ financial performance. In contrast, environmental initiatives, despite their increasing prominence in the financial sector, show no significant relationship with financial outcomes. These results suggest that while economic and social dimensions of sustainability may directly contribute to financial performance, the benefits of environmental initiatives may be less immediate or more difficult to quantify in the short term. Overall, the study highlights the importance of integrating sustainability initiatives into banking strategies, while also emphasizing the need for further research to clarify the mechanisms through which these practices influence financial outcomes. The lack of significant findings regarding environmental initiatives, in particular, underscores the necessity for deeper investigation into contextual and institutional factors that may moderate the relationship between sustainability and performance in the Sri Lankan banking sector.
Keywords: Sustainability, Financial Performance, Economic Initiatives, Environmental Initiatives, Social Initiatives
