Abstract

Organizations must safeguard the legitimate interests of all stakeholders in addition to shareholders under the principles of corporate sustainability (CS). CS has grabbed substantial attention from various stakeholders over the last decade; thereby scholars, researchers, and academicians also scrutinized it from different perspectives (Rahman et al., 2023). However, most of these studies inquired about how CS affects the Financial Performance (FP) of the firms as one of their great concerns, especially in developing countries (Charan et al., 2019). The outcomes of these studies on the nexus of CS with FP, however, lack agreement by reporting their positive (Alshehhi et al., 2018), negative, or no association (Friede et al., 2015; Orlitzky et al., 2003). The inconsistency in the results of prior studies may be attributed to various factors, including disparities in data, sample size, and timing. Furthermore, the divergent contexts in which these studies were conducted, with a majority taking place in affluent countries, while research in the subject remains limited in developing countries, could also contribute to the contradictions (Rahman and Zahid, 2021; Wang and Clift, 2009). The difference in nature of the firms or their business (financial and non-financial) could be another possible reason for contradictory outcomes as most of the prior literature is related to non-financial organizations rather than financial institutions, especially banks. Banks like or even more than others or non-financial organizations are concerned about CS while working for the economic prosperity of their clients and countries (Mehwish, Afeef & KakaKhel, 2022). Besides adopting and improving their sustainable practices, banks are also expected to promote the CS of other organizations by capitalizing on their influence due to the provision of loans to them (Rahman et al., 2020). The contradiction in the findings of previous literature may also be owing to its extensive focus on the direct association of CS and FP rather than considering any moderation in their relationship (Alshehhi et al., 2018; Paolone et al., 2022). Thus, this study aims to investigate the connection between corporate social responsibility (CS) and financial performance (FP) of banks in a developing country such as Pakistan. It does so by proposing and examining the rarely explored role of micro-level green fintech efforts as a moderating factor in this relationship. The proposed moderation is logical and significant as most of the prior studies exclusively focused on such initiatives at the macro-, rather than the micro-level such as digital transactions and green banking, as used in this inquiry (Banna et al., 2021, 2022). This study applies the descriptive, normative, and instrumental approaches of the stakeholder theory. (Bansal & DesJardine, 2014; Donaldson & Preston, 1995). The theory's descriptive approach to implementing CS or the procedures involved in doing so will help the banking sector adopt green practices (fintech) for its operations. In a similar vein, the normative approach of the theory is connected to the reporting part of their yearly reports for the wider stakeholders. Similar to this, the instrumental approach discusses the advantages that banks may experience as a result of their reporting and sustainable initiatives, including improved FP. Hence, based on the above theoretical framework the study hypothesized that green fintech initiatives significantly moderate the nexus of CS and FP than non-green fintech. The study selected a purposive sample of 24 banks from a total of 32 banks registered on the Pakistan Stock Exchange (PSX) from 2017 to 2022 with a rationale of the availability of the required data (CS, fintech, and FP) in their reports. For measuring the CS practices the global regulatory organizations strongly advise using the global reporting initiative (GRI) framework, which served as the foundation for the index Jan et al., 2023). Furthermore, the adopted index is used in this study for a number of reasons. First off, the majority of banks in Pakistan adhere to their own policies and reporting frameworks because these disclosures are voluntary. Second, the majority of Pakistani banks do not adhere to reporting requirements as stipulated by databases such Refinitiv ESG assessment, Dow Jones Sustainability Index (DJSI), ISO 26000, United Nations Global Compact (UNGC), Kinder, Lydenberg and Domini (KLD), and others. Third, a number of research, particularly in developing nations, use the unweighted/quantitative evaluation method. The current study makes use of the micro-level data of in contrast to earlier work on macro-level measurements (Banna et al., 2022). The study evaluated green fintech using each bank's digital and green banking transactions. Similarly, the quantity of automated teller machines (ATMs) and point of sales (POS) was used to gauge the non-green fintech (Banna et al., 2022). Tobin's Q (TQ) and return on equity (ROE) are the two proxies used in the study for the FP. Net income divided by shareholder equity is used to calculate ROE, while market capitalization plus total liabilities divided by total assets is used to calculate TQ. Additionally, the study included control variables in the model, such as firm age (years since stock exchange registration), firm size (log of total assets), and firm leverage (total debt divided by total equity) (Zahid, Rahman, Shad, et al., 2020). The study used a quantitative content analysis approach for extracting data for the unweighted/quantitative assessment method. Using the ovtest, all the models were found to be endogenous, and therefore two-stage least squares (2SLS) estimator was used with an instrumental variable of the industry mean or average for estimating the hypothesized relationships (Zahid, Rahman, Khan, et al., 2020). The results revealed that CS and its dimensions (environmental, social, and governance) improve FP (ROE and Tobin’s Q), and green fintech initiatives using digital transactions and green banking moderate all these relationships except that of between governance and green banking (Zahid, Rahman, Khan, et al., 2020). The study has several contributions. First, it contributes to the limited literature investigating the business case of CS in the banking industry. Also, it expands prior literature by examining the moderating role of fintech – digital transactions and green banking in the relationship between CS and FP. Second, the study contributes to the theory and methodology by introducing and exploring the rarely probed new moderators of digital transactions and green banking representing fintech at the micro level in the banking industry. Third, the study enriches the practice and policy by updating all the key stakeholders that digital transactions and green banking amplify the positive effects of social and environmental aspects of CS on the FP of the banks. The findings also update the stakeholders that how banks may effectively reduce the negative impacts of their operations and improve their FP by promoting CS, digital transactions, and green banking, especially in developing countries, like Pakistan. Consequently, the study offers the banking sector useful insights for tailoring policy to emphasize the financial inclusion of larger stakeholders. Fifth, the study has application for the banking sector as regulators like the State Bank of Pakistan (SBP) establish green banking regulations and corporate social responsibility standards. Ultimately, the study offers the management a foundation upon which to build the business case for green banking and fintech-enabled financial inclusion using computer science techniques. There exist certain limitations to this study. Future research may consider the context of developed nations, as this study examined the moderating influence of the developing country setting (green and non-green) fintech in the link of ESG and FP. A bigger sample size, mediating variables, and qualitative model elements may also be considered in the prospective investigations.

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