CLIMATE FINANCE PRACTICES AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA: THE MODERATING ROLE OF REGULATORY FRAMEWORKS
Abstract
The purpose of the study was to examine the effect of climate finance practices on the financial performance of commercial banks in Kenya, specifically evaluating the influence of green financing, climate risk disclosure, and climate related investment policies, while establishing the moderating role of regulatory frameworks. The study was grounded in the Resource Based View Theory, Stakeholder Theory, Modern Portfolio Theory, and Institutional Theory. A descriptive correlational research design was adopted, targeting 234 banking professionals drawn from all 39 licensed commercial banks in Kenya, spanning credit, environmental social governance, risk, and investment functions. Using the Yamane formula, a sample of 148 respondents was determined and selected through proportionate stratified random sampling, with 123 questionnaires returned and analysed, representing a response rate of 83 percent. A structured questionnaire was used as the primary data collection instrument, and data was analysed using descriptive and inferential statistics through multiple and moderated regression. The findings revealed that climate finance practices had a significant combined effect on financial performance, explaining 69.5 percent of the variance (. Green financing recorded the strongest effect, followed by climate related investment policies and climate risk disclosure. The moderated analysis demonstrated that regulatory frameworks significantly enhanced the effectiveness of green financing and climate related investment policies, but not climate risk disclosure. The study recommends that institutions should entrenchment climate finance practices within a supportive regulatory environment for essential optimization of financial performance in commercial banks.
Keywords: Climate Finance Practices, Green Financing, Climate Risk Disclosure, Climate Related Investment Policies, Regulatory Frameworks, Financial Performance, Commercial Banks, Kenya.
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