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Article

The Impact of Green Banking Activities on Environmental Performance: A Youth-Driven Perception Study in Indonesian Financial Institutions

by
Maharestu Setyorini
and
Dzikri Firmansyah Hakam
*
Bandung Institute of Technology, Bandung 40132, Indonesia
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2025, 18(10), 558; https://doi.org/10.3390/jrfm18100558
Submission received: 14 June 2025 / Revised: 16 September 2025 / Accepted: 18 September 2025 / Published: 2 October 2025
(This article belongs to the Special Issue Banking Practices, Climate Risk and Financial Stability)
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Abstract

Green banking is a significant financial strategy for balancing environmental sustainability with economic progress. Banks can help address Indonesia’s environmental concerns by promoting sustainable behavior, financing green projects, and implementing environmentally friendly regulations. This study investigates how green banking practices affect perceived environmental performance and financial sustainability, with a particular emphasis on the involvement of young Indonesian bankers. A structured questionnaire was issued to 314 young bankers from various parts of Indonesia, using Likert-scale measures of three domains: banks’ perceived environmental performance, green banking activities, and sources of green finance. The findings show high perceived links between green banking operations and banks’ environmental performance, with green financing serving as a crucial mediator. Specific methods, such as paper reduction, internet banking, and supporting sustainable initiatives, were thought to improve bank performance. The findings underline the importance of younger generations in supporting and carrying out green activities, emphasizing their role in encouraging long-term change. Using Structural Equation Modelling (SEM), the study demonstrates that green finance improves perceived environmental performance and promotes sustainable banking practices. These findings emphasize the importance of incorporating green principles into banking strategy in order to achieve both financial and environmental sustainability in developing countries.

1. Introduction

Research suggests that Indonesia, like other nations, faces increasing pressure to respond promptly to climate change (Atif Nawaz et al., 2020; Chen et al., 2022; Khan et al., 2024; Wu et al., 2021; Zheng et al., 2021; L. I. Hakam et al., 2025). Investment has been a critical driver of Indonesia’s robust economic growth, which is projected to continue (Atif Nawaz et al., 2020; He et al., 2019b; Van Hoa et al., 2022; X. Zhang et al., 2022). However, the country faces rising sea temperatures and economic instability (Akter et al., 2018; Atif Nawaz et al., 2020; Wu et al., 2021; X. Zhang et al., 2022). Future green policies should prioritize initiatives such as green banking and sustainable buildings (Khairunnessa et al., 2021; Yu et al., 2021; X. Zhang et al., 2022). Banks play a crucial role in shaping economies and can significantly contribute to environmental improvement through sustainable financing (Gutiérrez-Ponce & Wibowo, 2023; Salim, 2018; Van Hoa et al., 2022; Ye & Dela, 2023). Over time, the banking and finance sectors can help mitigate environmental risks (Khan et al., 2024; S. Zhang et al., 2021; X. Zhang et al., 2022). In 2012, Bank Indonesia introduced Regulation 14/15/PBI of 2012, mandating environmental assessments for national banks or national banks (Setyo, 2014). Global experiences demonstrate that banks can play a vital role in fostering sustainable development and financial inclusion, as shown in studies of multinational banking practices, evidence linking financial inclusion to sustainability outcomes, and international frameworks such as the UNEP Finance Initiative (UNEP FI, 2024). Following this, the Financial Services Authority (OJK) issued Regulation 51/POJK.03/2017, which requires financial institutions to consider economic, social, and environmental factors and to disclose their green (Gutiérrez-Ponce & Wibowo, 2023; Otoritas Jasa Keuangan, 2018).
Environmental assessments can decrease expenses for banks and attract additional customers (Hossain et al., 2020; Khairunnessa et al., 2021; S. Zhang et al., 2021). Green finance conserves resources and facilitates the transformation of high-carbon industries, such as steel and cement, toward sustainability (Chen et al., 2022; Guang-Wen & Siddik, 2023; Huang et al., 2022; S. Zhang et al., 2021; X. Zhang et al., 2022). Beyond these micro-level practices, broader research highlights the systemic importance of green finance in addressing climate-related financial risks (BIS, 2020) and in reshaping fiduciary duty through the integration of environmental, social, and governance (ESG) considerations (de Mariz et al., 2024). Investments in sustainable communities and initiatives to mitigate emissions assist banks in reconciling economic growth with social responsibility (Atif Nawaz et al., 2020; He et al., 2019b; Van Hoa et al., 2022; X. Zhang et al., 2022). To enhance their green banking initiatives, Indonesian banks must deal with elevated operating expenses and reputational concerns (Gutiérrez-Ponce & Wibowo, 2023; Salim, 2018). (Jillani et al., 2024; Qureshi & Hussain, 2020) cited expertise, target market constraints, financial challenges, and difficulties in persuading consumers as the primary obstacles to developing skeptical green banking products in Pakistan. Likewise, (Sharma & Choubey, 2021, 2022) discovered that Indian banks encountered analogous challenges. Indonesian banks encounter several issues, such as client skepticism, reluctance to embrace new technology, inadequate awareness, insufficient educational initiatives, a deficiency in staff knowledge, elevated short-term expenses, and technical obstacles (Gutiérrez-Ponce & Wibowo 2023; Salim 2018). These obstacles jointly impede the advancement of green banking in emerging nations such as Indonesia (Gutiérrez-Ponce & Wibowo 2023; Salim 2018).
Recent studies have examined the global domain of green banking (GB) and green financing, emphasizing the advantages and obstacles linked to these practices. (Gutiérrez-Ponce & Wibowo, 2023; Salim, 2018) investigated the acceptance and development of GB in Indonesia (Hoque et al., 2019; Khan et al., 2024; Miah et al., 2018; Salim, 2018; Sharma & Choubey, 2022; X. Zhang et al., 2022) analyzed its benefits and limitations, and concentrated on performance and sustainability. While much study exists on the impact of green banking in countries such as Bangladesh, India, Pakistan, and Sri Lanka, more studies need to examine the environmental performance of Indonesian banks, especially with green funding. Comprehending the function of youth (Miah et al., 2018; Taghizadeh-Hesary & Yoshino, 2020; X. Zhang et al., 2022) and the allocation of green credit is crucial for facilitating Indonesia’s sustainable development.
Previous studies have examined the implementation of green banking and its environmental performance in nations including Indonesia, China, Bangladesh, India, Pakistan, Vietnam, and Japan, emphasizing key stakeholders’ advantages, challenges, and responsibilities (Gutiérrez-Ponce & Wibowo, 2023; Islam et al., 2023; Jillani et al., 2024; Khan et al., 2024; Qureshi & Hussain, 2020; Taghizadeh-Hesary & Yoshino, 2020; Van Hoa et al., 2022; Xing et al., 2020; X. Zhang et al., 2022). Other studies examine the mediating impact of green financing in enhancing the environmental performance of banks in emerging markets (Islam et al., 2023; Jillani et al., 2024; Xing et al., 2020). Considering these insights, there is insufficient research examining the young viewpoint on the environmental impact of green banking, particularly in Indonesia. Moreover, Indonesian banks encounter distinct hurdles, including limited public awareness and elevated costs, resulting in a gap in understanding how young Indonesian bankers view and contribute to green banking. This study examines the function of green funding as an intermediary between green banking activities and environmental performance, focusing on a youth-driven perspective in Indonesia. To the authors’ knowledge, this study is the first to evaluate these viewpoints within Indonesia’s financial industry, specifically analyzing the impact of green banking activities on young Indonesian bankers. This research seeks to educate stakeholders on techniques for improving green banking, therefore facilitating sustainable development in Indonesia.
This study examines the influence of green banking practices on environmental performance within Indonesian financial institutions, focusing on the perspectives of the youth. Section 2 delineates the materials and methodologies employed, encompassing the structured questionnaire aimed at young Indonesian bankers, and elucidates the research design utilizing the Structural Equation Modelling (SEM) technique through SmartPLS. Section 3 delineates the methodological framework and statistical instruments employed, whereas Section 4 presents a comprehensive analysis of questionnaire data utilizing SmartPLS, addressing reflective, formative, and structural measurement models. Finally, Section 5 delineates the principal findings, underscores significant insights, and provides pragmatic recommendations for policy and practice.

2. Materials and Method

The growing recognition of environmental sustainability and economic development in the financial sector has resulted in a rise in green banking projects in multiple countries’ responsibilities (Gutiérrez-Ponce & Wibowo, 2023; Islam et al., 2023; Jillani et al., 2024; Khan et al., 2024; Qureshi & Hussain, 2020; Taghizadeh-Hesary & Yoshino, 2020; Van Hoa et al., 2022; Xing et al., 2020; X. Zhang et al., 2022). Green banking includes initiatives such as supporting environmentally sustainable projects, providing green loans, and adopting energy-efficient processes within banks to minimize carbon emissions and resource usage (Bose et al., 2018; Hoque et al., 2019; Khairunnessa et al., 2021; Khan et al., 2024; Miah et al., 2018; Salim, 2018; Sharma & Choubey, 2022; Xing et al., 2020). In Indonesia, rules such as Bank Indonesia’s environmental assessment mandate and the Financial Services Authority’s stipulations for incorporating environmental considerations into banking have been instrumental in promoting green financial practices (Otoritas Jasa Keuangan, 2018; Salim, 2018; Setyo, 2014). Nonetheless, obstacles persist, such as client skepticism, substantial initial expenses, and insufficient public awareness of the advantages of green banking (Sharma & Choubey, 2021, 2022; X. Zhang et al., 2022).
Advancing green banking necessitates a heightened emphasis on the forthcoming generation (X. Zhang et al., 2022; Zheng et al., 2021). Young individuals, especially Generation Z and Millennials, are becoming a pivotal influence in advancing environmental initiatives and transforming banking practices (Miah et al., 2018; RRI, 2024; Taghizadeh-Hesary & Yoshino, 2020; X. Zhang et al., 2022; D. F. Hakam et al., 2025). Over fifty percent of Indonesia’s population is under thirty, keeping this group significantly influential as prospective leaders and environmentally aware consumers (RRI, 2024). Studies indicate that Millennials and Generation Z are more likely to endorse organizations emphasizing sustainability due to their increased social and environmental consciousness (Miah et al., 2018; RRI, 2024; Taghizadeh-Hesary & Yoshino, 2020; X. Zhang et al., 2022). Their involvement in digital technology corresponds with the initiative for digital banking services that reduce environmental impact, including online transactions and decreased paper use (Rehman et al., 2021; X. Zhang et al., 2022).
Notwithstanding advancements, Indonesian banks persist in contending with elevated operational costs and technological impediments that obstruct the extensive implementation of green banking practices (Sharma & Choubey, 2021, 2022; X. Zhang et al., 2022; D. F. Hakam & Hakam, 2024). Financial firms must consequently implement new tactics, like providing incentives for green loans and investing in education to enhance environmental awareness among staff and customers (X. Zhang et al., 2022; Zheng et al., 2021). Insights from nations such as Bangladesh and India underscore the capacity of banks to mitigate carbon emissions via focused green financing initiatives substantially (Bose et al., 2018; Sharma & Choubey, 2021, 2022). Youth engagement is essential, as their distinct viewpoints and dedication to the Sustainable Development Goals (SDGs) might elevate green banking to a prevalent practice, markedly enhancing environmental performance (Guang-Wen & Siddik, 2023; Otoritas Jasa Keuangan, 2018; Raihan, 2007).
Prior research on green financing preferences has employed the questionnaire method in various nations, concentrating on procedures and outcomes. Table 1 provides a reference for comprehending the use of green financing in this study. he variables in Table 1 were selected to ensure comparability across studies: Country and Sector capture research contexts, Sample Size and Methods reflect study design, Focus summarizes objectives, and Dependent/Independent Variables clarify the tested relationships. A thorough examination of multiple publications was performed to acquire insights into previous research. The evaluation sought to pinpoint research deficiencies, including the absence of concentrated studies on global banking and utilities sector firms. The evaluated papers vary in variables, techniques, and scopes, indicating their distinct study aims. This literature evaluation will integrate prior scientific studies and theoretical grounds to create a coherent framework for the inquiry.
The correlation between green banking practices and their effect on environmental performance is a predominant focus in extensive studies. This link necessitates thoroughly examining intermediary elements, including stakeholder influence and green financing. For instance, Flammer (2021) demonstrates how corporate green bonds function as a credible signal of firms’ environmental commitment, leading to improved environmental performance and attracting long-term green investors. A multitude of studies have utilized Partial Least Squares-based Structural Equation Modelling (PLS-SEM) for data analysis and hypothesis testing, including research by (Chen et al., 2022; Guang-Wen & Siddik, 2023; Islam et al., 2023; Jillani et al., 2024; Khan et al., 2024; Wu et al., 2021; Ye & Dela, 2023; X. Zhang et al., 2022; Zheng et al., 2021) The studies primarily concentrate on the environmental performance of banks or organizations, typically assessed using sustainability indicators and environmental impact reduction. A substantial research segment focuses on the banking industry: private commercial banks in Indonesia, China, Bangladesh, India, Pakistan, Vietnam, and Japan.
The research shows similarities and differences across studies conducted in China, Bangladesh, India, Pakistan, Vietnam, and Japan. Each country has economic conditions, regulations, and cultural factors influencing green banking. Commonly used analysis methods include PLS-SEM, but other approaches like regression analysis and qualitative content analysis are also used. Data sources range from surveys and interviews to panel data. Studies focus on green banking practices, stakeholder influence, fintech adoption, green innovation, corporate social responsibility, and financial inclusion. Some research extends to other industries, such as chemical companies and renewable energy firms, examining the broader impact of green finance.
Examples include (Chen et al., 2022; Guang-Wen & Siddik, 2023; Hossain et al., 2020; Islam et al., 2023; X. Zhang et al., 2022; Zheng et al., 2021) studying the role of green finance in improving bank performance and highlighting green financing as a key factor in sustainability in Bangladesh. Other research, like (Hossain et al., 2020), links eco-friendly banking to financial metrics, while Gutiérrez-Ponce and Wibowo (2023) examine ESG impacts on Indonesian banks. Studies like (Guang-Wen & Siddik, 2023) emphasize the role of fintech in green finance, and (He et al., 2019a, 2019b; Taghizadeh-Hesary & Yoshino, 2020) explore how policies enhance renewable energy investments. The overarching goal of existing research on green banking is to explore its role in promoting both financial performance and environmental sustainability. Despite differences in methods and contexts, scholars consistently emphasize how green banking practices influence banks’ operational efficiency and environmental outcomes, providing valuable insights into effective sustainability strategies.
This study employs a quantitative, cross-sectional survey design to examine the perceived impact of green banking initiatives on banks’ environmental performance, with a particular focus on younger Indonesian bankers. A survey-based approach was selected because it enables the systematic collection of standardized data within a single time frame, while Partial Least Squares Structural Equation Modelling (PLS-SEM) was adopted as the primary analytical method due to its suitability for handling complex models with mediating variables, small-to-medium sample sizes, and data that may not follow normal distributions (Hair et al., 2011, 2019).
The target population consisted of banking professionals aged 21 to 45 who are actively involved in green banking activities, as this demographic is increasingly central to the adoption and promotion of sustainability-oriented practices within financial institutions. A convenience sampling method was applied to reach participants from a range of banks and regions, resulting in 314 valid responses. Although convenience sampling limits generalizability, the sample size exceeded the minimum threshold recommended for PLS-SEM and is therefore adequate for the study’s objectives. The results, illustrated in Figure 1 will be analyzed in light of the hypothesized linkages. The hypotheses are:
H1. 
The implementation of green banking activities significantly influences the environmental performance of banks.
H2. 
Green banking activities substantially influence the origins of green financing.
H3. 
Green finance sources have a substantial impact on the environmental performance of banks.
H4. 
In this study, we examine the role of green finance sources in bridging the relationship between green banking activities and banks’ environmental performance.
Although green financing is often considered a component of green banking, this study differentiates between the two. GBA refers to the operational and policy-oriented practices of banks (e.g., paper reduction, digital banking, eco-friendly services), while SGF specifically denotes the financial flows and instruments (e.g., loans, investments in renewable energy, waste management, recycling) that allocate capital toward sustainability projects. Accordingly, H1 examines the direct effect of GBA on BEP, whereas H4 tests whether part of this influence occurs indirectly, mediated by SGF.
The survey was performed among professionals engaged in green banking activities, primarily targeting the youth demographic aged 21 to 45, representing a substantial segment of the workforce in Indonesia. In this study, the age range of 21–45 was classified as “young” to capture both Generation Z (born after 1995) and Millennials/Generation Y (born 1980–1995), who together represent the majority of Indonesia’s banking workforce (Rohman, 2024). The questionnaire employed a Likert Scale (LS) to assess participants’ agreement with statements concerning green banking activities, environmental performance, and sources of green financing, with responses spanning from 1 (strongly disagree) to 5 (strongly agree). Table 2 delineates the compilation of survey inquiries.
The collected data were analyzed using SmartPLS software in accordance with established SEM guidelines. Reflective measurement models were assessed in terms of outer loadings, internal consistency reliability, and convergent validity, while formative constructs were examined through convergent validity, collinearity diagnostics, and the significance of individual indicators. The structural model was then evaluated using path coefficients, t-statistics, and p-values obtained through bootstrapping. The hypotheses tested included both direct and indirect effects, with particular attention to the mediating role of green financing in the relationship between green banking activities and environmental performance. This methodological approach provides a rigorous and transparent framework for assessing how young bankers perceive the role of green banking in enhancing environmental sustainability.

3. Results

3.1. Demographic Attributes of Participants and Descriptive Variable

This research encompassed 314 young professionals employed in the Indonesian banking sector. The gender distribution of participants was quite equitable, with 53.5% male and 46.5% female respondents. The predominant age group of responders was 31–40 years (58.6%), followed by 21–30 years (23.9%) and 41–45 years (17.5%). Regarding education, 66.6% of respondents possessed a bachelor’s degree, 32.5% had attained a master’s degree, and a minor percentage held doctoral degrees (0.3%). Regarding professional roles, 72.9% of participants held staff posts, 21.7% served as department heads, and 4.1% occupied the role of division heads. Furthermore, 38.2% of respondents indicated they had more than 15 years of professional experience, demonstrating their considerable expertise in financial operations, including green banking activities.
The outcomes of descriptive statistical analysis for the research variables, Green Bank Activities (GBA), Source of Green Financing (SGF), and Bank’s Environmental Performance, indicate respondents’ perceptions concerning implementing green financing within financial institutions based on these three variables. The subsequent results pertain to the descriptive analysis of each statement item inside the green banking activity variable.
Table 3 presents the mean value for each statement about the green banking activities variable, yielding an overall average of 4.11, indicating that respondents see green banking activities positively. Green banking initiatives are regarded as relatively significant in motivating users to engage in ecologically sustainable practices, including online bill payments, digital correspondence, and electronic statements. Moreover, using green banking practices diminishes paper usage in administrative functions and the allocation of credit/financing, which must adhere to the standards for sustainable business operations. The subsequent results pertain to the descriptive analysis of each statement item inside the Source of Green Financing variable.
Table 4 provides the mean value for each statement inside the Source of Green Financing variable, yielding an overall average of 3.47, indicating that respondents’ impression of Green Financing is generally favorable. The perceived high source of green financing is attributed to the Institution’s increased investment in recycling and recyclable products for its partnered entities. Moreover, financial institutions have allocated additional resources to waste management and other eco-friendly initiatives by implementing Green Financing.
Table 5 illustrates the mean value for each statement within the Bank’s Environmental performance variable, yielding an overall average of 3.94, indicating that respondents perceive the Bank’s Environmental performance positively. The Bank’s environmental performance is commendable, and the organization has enhanced efficiency by decreasing energy use. Furthermore, in executing the Bank’s Environmental Performance, the Institution offers eco-conscious employee training focused on energy and paper conservation.

3.2. Validity and Reliability Results

The study instrument requires validity and reliability testing to evaluate the effectiveness of each question in evaluating its variables, specifically green banking operations, sources of green financing, and the bank’s environmental performance. Table 6 displays the outcomes of the validity and reliability assessments of the research variables.
The KMO (Kaiser-Meyer-Olkin) values for the Green Banking Activities (GBA) variable at 0.801, the Source of Green Financing variable at 0.799, and the Bank’s Environmental Performance variable at 0.704, all exceed 0.05, indicating the validity of the research variables. The subsequent test will assess whether each indicator within these variables also exceeds 0.05, confirming that each indicator effectively measures its respective variable.
Reliability testing indicated Cronbach’s Alpha value of 0.813 for the Green Banking Activities (GBA) variable, 0.919 for the Source of Green Financing variable, and 0.823 for the Bank’s Environmental Performance variable. Each value exceeds 0.60, signifying that the indicators for measuring these variables are reliable and can be depended upon for assessment. The test findings indicate that the research variables satisfy the criteria for validity and reliability.

3.3. Hypothesis Testing

Figure 2 illustrates the structural relationships among the principal variables investigated in this study, which were analyzed using SMART-PLS by the structural equation model (SEM). The picture depicts the direct impacts of Global Bank Activities (GBA) on both the Bank’s Environmental Performance (BEP) and the Source of Global Financing (SGF). The route coefficient from GBA to BEP is 0.600, signifying a strong and significant direct effect. In contrast, the path coefficient from GBA to SGF is 0.578, demonstrating a substantial connection between banking operations and sources of green funding. Furthermore, SGF facilitates the connection between GBA and BEP with a path coefficient of 0.208, underscoring its essential function in enhancing the environmental effects of green banking practices. The indicator loadings for the constructions depicted in Figure 2 demonstrate the model’s reliability and validity.
Table 7 enhances the findings from Figure 2 by presenting comprehensive statistical results for the hypothesis testing. All four hypotheses (H1 to H4) were validated, exhibiting significant route coefficients and p-values below 0.01. Hypothesis H1 substantiates the direct impact of GBA on BEP (estimate: 0.600; t-stat: 10.795; p-value: 0.000), whereas H2 corroborates the direct effect of GBA on SGF (estimate: 0.578; t-stat: 13.515; p-value: 0.000). H3 delineates the function of SGF in directly augmenting BEP (estimate: 0.208; t-stat: 3.813; p-value: 0.000). Finally, H4 emphasizes the indirect influence of GBA on BEP via SGF (estimate: 0.120; t-stat: 3.562; p-value: 0.000). Figure 2 and Table 7 collectively illustrate the interrelated dynamics of green banking activities, green financing, and environmental performance, highlighting the necessity of incorporating sustainable financing strategies to improve environmental results.

3.4. Major Challenges Affecting the Implementation of Green Banking

Participants were requested to pinpoint the primary barriers to implementing green banking in financial institutions, and their replies are encapsulated in Table 8, which underscores the significant challenges faced by institutions, especially concerning the youth demographic, in embracing green banking practices. The results indicate multiple urgent concerns, such as insufficient understanding of green credit or loans (23.6%), elevated investment costs (17.5%), and minimal demand for green financing (13.4%). Further impediments encompass challenges in evaluating green initiatives (11.5%), technical hurdles stemming from knowledge deficiencies and individual motivation (10.8%), as well as issues such as diversification difficulties (7.3%), credit risks associated with green financing (7%), and operational shortcomings (4.1%). Minor percentages indicate challenges such as insufficient skilled personnel (3.2%) and a temporary decline in banking competitiveness (1.6%).
These findings correspond with analogous issues recognized by X. Zhang et al. (2022), who examined the implementation of green banking in developing nations, including Bangladesh, Pakistan, and Vietnam. Their research similarly emphasized challenges, including insufficient awareness, elevated prices, and restricted demand for green funding. Addressing these difficulties is essential for achieving a sustainable green economy and national development. To effectively reduce these impediments, it is proposed to enhance public awareness, diminish financial constraints, and advance technical capabilities and training.

3.5. Major Benefits Affecting the Implementation of Green Banking

This study solicited respondents to identify the advantages of implementing Green Banking in financial institutions. The results, summarized in Table 9, categorize these benefits by significance and frequency, illustrating the youth generation’s perspectives on the merits of adopting Green Banking practices. The primary advantages noted included a significant contribution to sustainable national economic development (24.2%), closely followed by the provision of environmental benefits (23.6%). Additional notable benefits encompass a reduction in long-term costs and expenses (12.4%), a decrease in carbon footprint (10.2%), and the supply of eco-friendly items (7.6%). Subtle yet significant advantages encompass enhanced bank competition, reputation enhancement, and energy conservation.
These findings highlight the diverse benefits of Green Banking, particularly for the younger workforce in financial institutions, as they integrate their professional responsibilities with overarching sustainability objectives. The findings indicate an increasing academic and professional interest in green financing and green bonds, which is evident in both developed and developing countries. This study investigated the impact of Green Banking operations on the environmental performance of banks and assessed the role of green finance as a mediator in this relationship. The survey findings indicate that Green Banking meets immediate financial and operational objectives and promotes long-term environmental and economic sustainability, rendering it a significant strategy for financial institutions seeking to align with global sustainability trends.

4. Discussion

This study provides essential insights into the impact of green banking practices on the environmental performance of banks in Indonesia, especially from the younger generation’s viewpoint. This section highlights significant gaps and implications for policy and practice by comparing its findings with previous studies’ findings. In alignment with the research of (Bose et al., 2018; Chen et al., 2022; Kala, 2020; Khairunnessa et al., 2021; Sharma & Choubey, 2021; X. Zhang et al., 2022), the present study substantiates that green banking initiatives, such as minimizing paper usage and enhancing energy efficiency, directly and substantially improve environmental performance. Young Indonesian bankers consider these activities essential for linking banking operations with sustainability goals. The study highlights the mediating role of green financing, which enhances the connection between green banking practices and environmental performance. This corresponds with (Chen et al., 2022; He et al., 2019a, 2019b; Taghizadeh-Hesary & Yoshino, 2020), who emphasized the significance of investments in renewable energy, recycling, and waste management as essential factors for environmental enhancement.
The research investigates the perspectives of Generation Z and Millennials, highlighting their significant openness to digital transition and environmental awareness. This aligns with the observations of (Chen et al., 2022; Gutiérrez-Ponce & Wibowo, 2023; He et al., 2019a, 2019b; Taghizadeh-Hesary & Yoshino, 2020; Rahmatullah & Hakam, 2025), who highlighted the eagerness of younger generations to adopt innovative green initiatives, in contrast to the more traditional stance of older generations. Furthermore, research in nations such as Bangladesh and Pakistan (Chen et al., 2022; Jillani et al., 2024; X. Zhang et al., 2022) underscores the mediating roles of stakeholder engagement and external influences. In contrast, the Indonesian context accentuates the internal significance of green financing as a vital facilitator of environmental results. This disparity highlights the necessity for customized strategies considering socio-economic and regulatory variations among nations.
Table 10 summarizes the correlations among independent variables, mediators, and dependent variables from this study and others. The present study underscores the crucial impact of green banking initiatives and green finance on enhancing environmental performance, aligning with the conclusions of (Chen et al., 2022; X. Zhang et al., 2022). (Jillani et al., 2024) examine the role of stakeholder influence as a mediating factor, concentrating on the performance of banks rather than on environmental sustainability. (Gutiérrez-Ponce & Wibowo, 2023; Sharma & Choubey, 2022) underscore financial and operational performance metrics, including return on assets (ROA) and environmental standards. These comparisons demonstrate the many perspectives from which green banking is analyzed worldwide, highlighting the necessity for context-specific solutions in implementing green banking practices. The results indicate that green banking initiatives in Indonesia had to prioritize digital literacy programs and tailored marketing techniques to engage younger demographics effectively. Confronting operational obstacles, including elevated implementation costs, is crucial for attaining extensive acceptance of green banking practices.

5. Conclusions

Green banking initiatives have emerged as a transformative approach to enhancing the environmental efficiency of financial institutions in Indonesia. This study provides empirical evidence, based on the perceptions of 314 young Indonesian bankers, that green banking activities positively influence environmental performance, both directly and indirectly through green financing. Respondents reported that practices such as reducing paper usage, promoting digital banking, and financing sustainable projects strengthen perceived environmental outcomes, while green financing was viewed as a key intermediary enabling investments in renewable energy, waste management, and energy efficiency. These results highlight important relationships but should be understood as reflections of perceptions rather than objective institutional performance.
The findings underscore the strategic role of Generation Z and Millennials in advancing sustainable banking practices, given their ecological awareness and digital proficiency (D. F. Hakam et al., 2024). Financial institutions can build on these insights by offering innovative green products, strengthening internal initiatives such as paperless operations and employee training, and collaborating with regulators like the Financial Services Authority (OJK) to create supportive incentives. A key limitation is the reliance on perception-based data. Future studies should incorporate objective performance indicators and longitudinal designs to better capture the actual environmental impacts of green banking initiatives.

Author Contributions

Conceptualization, M.S. and D.F.H.; methodology, M.S. and D.F.H.; software, M.S. and D.F.H.; validation, M.S. and D.F.H.; formal analysis, M.S. and D.F.H.; investigation, M.S. and D.F.H.; resources, M.S. and D.F.H.; data curation, M.S. and D.F.H.; writing—original draft preparation, M.S.; writing—review and editing, D.F.H.; visualization, M.S.; supervision, D.F.H.; project administration, M.S. and D.F.H.; funding acquisition, M.S. and D.F.H. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Ethical review and approval were waived for this study due to the fact that the research relied on anonymous questionnaire data from young professionals in the Indonesian banking sector, with voluntary participation and no collection of personally identifiable or sensitive information.

Informed Consent Statement

Informed consent was obtained from all subjects involved in the study.

Data Availability Statement

The original contributions presented in this study are included in the article. Further inquiries can be directed to the corresponding author.

Conflicts of Interest

The authors declare no conflict or interest.

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Figure 1. Conceptual Framework (adapted from X. Zhang et al., 2022).
Figure 1. Conceptual Framework (adapted from X. Zhang et al., 2022).
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Figure 2. Structural Model—SMART PLS.
Figure 2. Structural Model—SMART PLS.
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Table 1. Previous Relevant Research.
Table 1. Previous Relevant Research.
CountryQuantity of SamplesSectorMethodsFocusDependent VariableIndependent VariableSource
Bangladesh352 BankersPrivate Commercial Banking Partial Least Squares-based Structural Equation Modelling (PLS-SEM)Green financing is considered a mediator between green banking and environmental performance.Bank’s Environmental PerformanceIndependent Variable: Green Banking Activities.
Intervening/Mediating Variable: Source of Green Financing		(X. Zhang et al., 2022)
Pakistan250 BankersBankingMixed Methods (Survey and In-depth Interviews), PLS-SEMExamines how stakeholders mediate green banking practices and environmental performance.Bank’s PerformanceIndependent Variable: Green Banking Practices,
Intervening/Mediating Variable: Stakeholders’ Influence		(Jillani et al., 2024)
Bangladesh 14 Listed BanksBanking from 2011 to 2020Two-stage least square (2SLS) regression analysisThe relationship between green banking and banks’ financial performanceFinancial Performance: Return on Assets (ROA), Return on Equity (ROE), Market Value (MV)Independent Variable: Green Banking Practice Variable: Green Cost (GCOS): Volume of Risk Management Committee (VRMC).
Control Variable: Operating Cost Ratio (OCR), Bank Size (BSIZE)		(Hossain et al., 2020)
Bangladesh322 BankersPrivate Commercial BankingStructural Equation Model (SEM)Examines how green banking affects banks’ environmental performance.Banks’ Environmental Performance: Environmental sustainability metrics reported by banksIndependent Variable: green Banking Practices: Banks Employee Related Practices (BERP), Operation (BORP, Customer (BCRP), and Policy (BPRP)
Intervening/Mediating Variable: Green Financing		(Chen et al., 2022)
Indonesia5 BanksBanking from 2010 to 2020Panel data (ESG data from Thomson Reuters), statistical correlations, and regression modelsAssesses how sustainability actions affect bank finances.Financial Performance: Measures like Return on Assets (ROA), Return on Equity (ROE), and other profitability metricsIndependent Variable: Sustainability Activities: environmental, social, and governance.
Control Variable: Size and Leverage		(Gutiérrez-Ponce & Wibowo, 2023)
India36 Bankers from 12 banks Public and Private BankingQualitative Study (Interviews): Content AnalysisExamines how green product innovation, CSR, and internal processes affect brand image and confidence in green banking.Environmental Performance: Improvement in environmental practices and reduction in carbon footprintGreen Banking Initiatives: Implementation of eco-friendly practices and policies(Sharma & Choubey, 2022)
Bangladesh302 BankersBanking PLS-SEMExamines how Fintech adoption affects green finance and environmental performance during COVID-19.Environmental Performance: Metrics related to sustainability and green practicesIndependent Variable: Fintech adoption and Green Finance
Intervening/Mediating Variable: Green Innovation		(Guang-Wen & Siddik, 2023)
Bangladesh540 Bankers from 30 Banks Private Commercial BankingPLS-SEMExamines Bangladesh’s financial performance and green banking.Environmental Performance and Social PerformanceIndependent Variable: Stakeholders’ Pressure: Customer, Competitors, Employee, Government, Senior Managers
Intervening/Mediating Variable: Green Practice Innovation		(Islam et al., 2023)
Pakistan390 BankersIslamic BankingPLS-SEMExamines how workers’ environmental knowledge affects Pakistani Islamic banks’ green banking operations and reputation.Bank ReputationIndependent Variable: Employees, Daily operations, Customers, and Bank Policy
Moderating Variable: Environmental Awareness		(Khan et al., 2024)
Indonesia238 foreign chemical companiesChemical IndustryPLS-SEMExamines how green funds and investment affect CSR and sustainable enterprise performance.Sustainable Business PerformanceIndependent Variable: Green Investment and Green Financing
Intervening/Mediating Variable: Corporate Social Responsibility		(Ye & Dela, 2023)
Vietnam35 observations over the period from 1986 to 2020Sustainable Economic DevelopmentRegression AnalysisExamines how financial inclusion, green investment, and green loans affect Vietnam’s SED.Sustainable Economic DevelopmentAssess to Outstanding Deposits, Assess to Outstanding Loans, Green Investment, Green Credit, Foreign Direct Investment(Van Hoa et al., 2022)
China 1.699 listed industrial firmsIndustrialQuantitative (Survey)Examines how funding restrictions affect green innovation.Sustainability Performance: Overall sustainability metricsFinancial Inclusion: Access to financial services; Green Investment: Investment in sustainable projects; Green Credit: Loans for eco-friendly projects(Yu et al., 2021)
Bangladesh 302 bankersFinancialPLS-SEMIn underdeveloped economies like Bangladesh, examine how green finance affects the sustainability of financial institutions.Sustainability Performance: Environmental and social performance metricsFactors: Green finance, regulatory policies, stakeholder engagement(Zheng et al., 2021)
China141 listed renewable energy enterprisesRenewable EnergyQuantitative Analysis (Panel Data Regression)Examines whether green finance boosts renewable energy investment efficiency.Investment Efficiency: Metrics related to renewable energy investment returnsGreen Financial Development: Financial policies and products promoting green investments(He et al., 2019a)
Japancase studies and examples of solutions for green financingRenewable EnergyQualitative AnalysisExamines green financial alternatives and their environmental impact.Environmental Sustainability: Impact metrics related to sustainability practicesGreen Financing Solutions: Policies and practices promoting green finance(Taghizadeh-Hesary & Yoshino, 2020)
G7 and E7 countries14 countriesEconomic and EnvironmentalStructural Equation Modeling (SEM)Estimates how a cleaner environment will boost E7 and G7 GDP over time.Climate Change Mitigation: Reduction in greenhouse gas emissionsGreen Financing: Investments in green projects and technologies(Wu et al., 2021)
China19.630 firm-year observations from listed companiesBanking and Corporate FinanceQuantitative Analysis (Regression)Examines China’s green credit policy’s impact on green management and bank lending.Bank LoansIndependent Variable: Green Management
Moderating Variable: Disclosure Choice & Quality, Government Pressure A & B
Control Variable: State-Owned Enterprise, Age, Ownership Concentration, etc.		(Xing et al., 2020)
China30 provincesGreen Finance and InnovationQuantitative Analysis (Regression Analysis)Explores the geographical and non-linear effects of green funding on green innovation.Green Innovation: Number of green patents and eco-friendly technologies developedGreen Finance: Availability and amount of green financial products(Huang et al., 2022)
China945 listed companies and 30 provincesEnvironmental and FinancialMixed MethodsGCP may promote sustainability. Little research exists on its policy effects on “two high” (high energy consumption and pollution) enterprises’ micro and macro investment and financing and environmental quality.Sustainable Development: Metrics related to environmental, social, and economic sustainabilityGreen Finance: Investments, policies, and financial products supporting sustainability(S. Zhang et al., 2021)
China150 listed renewable energy companiesRenewable EnergyQuantitative AnalysisDevelop a threshold effect model to examine the non-linear relationship between renewable energy investment and the green economy development index from a green credit perspective.Green Economy: Growth in the green sectorGreen Credit: Loans and credits supporting green projects; Renewable Energy Investment: Amount invested in renewable energy projects(He et al., 2019b)
Table 2. Questionnaire List.
Table 2. Questionnaire List.
Latent VariableIndicatorsDefinitionItems
Green banking activities (GBA)Independent VariableAn emerging concept that has a crucial impact on the fields of climatic phenomena, financial market activities, and the sustainable economic progress of a nation
  • Introducing energy-efficient systems, solutions, and practices
  • Introducing internet banking services.
  • Facilitating financing for environmentally sustainable initiatives
  • Conduct seminars and symposiums to advocate for environmentally sustainable methods
  • Development of additional verdant branches
  • Decrease in paper usage
  • Promotion of environmentally friendly banking practices among customers, including online bill payment, remote deposit, and e-statements
The bank’s Environmental performance (BEP)Dependent VariableThe impact of a company’s activities on the ecological system
  • Reducing energy consumption
  • Reducing carbon emissions
  • Delivering green training to employees on energy and paper conservation
Source of Green Financing (SGF)Intervening VariableThis phrase has many interpretations in both academic and business contexts
  • My bank has allocated significant investments in the renewable energy sectors.
  • My bank has allocated more funds towards energy efficiency initiatives.
  • My bank has made greater investments in recycling and packaging materials that can be recycled.
  • My bank has allocated greater resources towards trash management and other environmentally sustainable initiatives.
Table 3. Descriptive Variables for Green Banking Activities.
Table 3. Descriptive Variables for Green Banking Activities.
Variable and IndicatorsMeanS.D.
Green Banking Activities
1.Introducing energy-efficient systems, solutions, and practices (GBA1)4.070.695
2.Introducing online banking facilities (GBA2)4.030.734
3.Providing loans for eco-friendly projects (GBA3)4.210.757
4.Convening seminars and conferences to advocate for environmentally sustainable behavior (GBA4)3.940.776
5.Establishment of more green branches (GBA5)3.910.843
6.Reduction in paper consumption (GBA6)4.230.899
7.Promoting customers’ engagement in environmentally sustainable banking practices, including bill payment via the Internet, online deposit, and e-statements (GBA7)4.390.743
Average Green Banking Activities 4.110.535
Table 4. Descriptive Variables for Source of Green Financing.
Table 4. Descriptive Variables for Source of Green Financing.
Variable and IndicatorsMeanS.D.
Source of Green Financing
1.Financial institutions have invested more on renewable energy sectors (SGF1)3.420.969
2.Financial institutions have invested more on energy efficiency projects (SGF2)3.460.922
3.Financial institutions have made more investments in recycling and items that can be recycled (SGF3)3.530.876
4.Financial institutions have allocated additional resources for waste collection and other environmentally sustainable initiatives (SGF4)3.470.922
Average Source of Green Financing3.470.828
Table 5. Descriptive Variables for Bank’s Environmental Performance.
Table 5. Descriptive Variables for Bank’s Environmental Performance.
Variable and IndicatorsMeanS.D.
Bank’s Environmental Performance
1.Reducing energy consumption (BEP1)4.020.823
2.Reducing carbon emissions (BEP2)3.820.916
3.Delivering environmental education to employees on energy and paper conservation (BEP3)3.990.883
Average Bank’s Environmental Performance3.940.752
Table 6. Validity and Reliability Results.
Table 6. Validity and Reliability Results.
VariablesItemCAKMOFLResult
Green banking activities (GBA)GBA10.8130.8010.844Valid and Reliable
GBA20.813
GBA30.784
GBA40.825
GBA50.824
GBA60.733
GBA70.781
Source of Green Financing (SGF)SGF10.9190.7990.805Valid and Reliable
SGF20.797
SGF30.794
SGF40.802
Bank’s Environmental PerformanceBEP10.8230.7040.695Valid and Reliable
BEP20.664
BEP30.774
Table 7. Structural Model Estimates.
Table 7. Structural Model Estimates.
HypothesisPathEstimatet-Statp-ValueResult
H1GBA → BEP0.60010.7950.000Ha1 accepted
H2GBA → SGF0.57813.5150.000Ha2 accepted
H3SGF → BEP0.2083.8130.000Ha3 accepted
H4GBA → SGF → BEP0.1203.5620.000Ha4 accepted
Table 8. Major Challenges Affecting the Implementation of Green Banking.
Table 8. Major Challenges Affecting the Implementation of Green Banking.
No.ChallengesFreq.Percent
1Lack of awareness regarding green financing7423.6
2High investment costs5517.5
3Low demand for Green Financing4213.4
4Difficulties and complexities in assessing green projects3611.5
5Technical barriers (knowledge, personally driven)3410.8
6Diversification issues (diversity of types of credit and green projects)237.3
7Credit Risk in Green Financing227
8Operational inadequacy134.1
9Lack of competent and trained staff in assessing green financing103.2
10Reduction in bank competitiveness in the short-term51.6
Total314100.0
Table 9. Major Benefits affecting the implementation of Green Banking.
Table 9. Major Benefits affecting the implementation of Green Banking.
No.BenefitsFreq.Percent
1Contribution to the achievement of sustainable national economic development7624.2
2Provision of environmental benefits7423.6
3Long-term cost and expense reduction3912.4
4Carbon footprint reduction3210.2
5Providing environmentally friendly products247.6
6Increasing Bank competitiveness175.4
7Reputation promotion165.1
8Energy conservation113.5
9Higher profits for Banks in the long term92.9
10Provision of online banking facilities82.5
11Savings in paper consumption51.6
12Tax benefits10.3
13Contribution to the achievement of sustainable national economic development10.3
14Increased customer goodwill10.3
Total314100.0
Table 10. Analysis of Results in Green Banking Research.
Table 10. Analysis of Results in Green Banking Research.
StudyIndependent VariableMediator VariableDependent VariableSignificant Variables
Current StudyGreen Banking ActivitiesGreen FinancingEnvironmental PerformanceAll variables significant
X. Zhang et al. (2022)Green Banking ActivitiesGreen FinancingEnvironmental PerformanceAll variables significant
Jillani et al. (2024)Green Banking PracticesStakeholders’ InfluenceBank’s PerformanceGreen banking practices significant
Chen et al. (2022)Green Banking PoliciesGreen FinancingEnvironmental SustainabilityAll variables significant
Gutiérrez-Ponce and Wibowo (2023)Sustainability ActivitiesNoneFinancial Performance (ROA, ROE)Sustainability activities significant
Sharma and Choubey (2022)Green Banking InitiativesNoneEnvironmental PracticesGreen CSR significant
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Setyorini, M.; Hakam, D.F. The Impact of Green Banking Activities on Environmental Performance: A Youth-Driven Perception Study in Indonesian Financial Institutions. J. Risk Financial Manag. 2025, 18, 558. https://doi.org/10.3390/jrfm18100558

AMA Style

Setyorini M, Hakam DF. The Impact of Green Banking Activities on Environmental Performance: A Youth-Driven Perception Study in Indonesian Financial Institutions. Journal of Risk and Financial Management. 2025; 18(10):558. https://doi.org/10.3390/jrfm18100558

Chicago/Turabian Style

Setyorini, Maharestu, and Dzikri Firmansyah Hakam. 2025. "The Impact of Green Banking Activities on Environmental Performance: A Youth-Driven Perception Study in Indonesian Financial Institutions" Journal of Risk and Financial Management 18, no. 10: 558. https://doi.org/10.3390/jrfm18100558

APA Style

Setyorini, M., & Hakam, D. F. (2025). The Impact of Green Banking Activities on Environmental Performance: A Youth-Driven Perception Study in Indonesian Financial Institutions. Journal of Risk and Financial Management, 18(10), 558. https://doi.org/10.3390/jrfm18100558

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