Examine the Level of Awareness in Green Banking Practices: Experience from Somalia

2.1 The need for green banking worldwide

The green banking idea has been described as a strategy to advance environmentally friendly banking practices, which attempts to minimize carbon footprint and to attract clients based on these distinctive practices [15]. However, the green banking idea is a stakeholder effort for a healthy environment and is not simply a concern of one party [16]. In terms of green banking applications, the philanthropic approach dominates the prior literature, although there is still no agreement on a single, comprehensive definition. Numerous academics agree that the advantages of green banking are for the greater good of society and are the driving force behind the expanding environmental effect [17]. The study argued that the concept of "green banking" not only promotes social responsibility but also considers responsibility by assessing a project's potential effects on the environment before funding [18]. Multiple studies have also backed green banking's social and environmental implications [19, 20].

According to another study, green banking is an ethical banking concept that emphasizes environmental conservation and encourages social and environmental responsibility by offering environmentally friendly financial services [18]. However, developed, developing, and underdeveloped countries typically take various approaches to green banking legislation [16]. To codify environmental policy under the control of central banks and regulators, several developing countries have established mandatory rules. For financing industries with sensitive climatic needs, India, for instance, imposed particular limitations. However, developed countries have adopted a voluntary approach to an industry-driven strategy to handle the financial risk associated with the environment as a component of maintaining a quality environment.

The devastating effects of human innovations on earth ecology began to become clear and widely recognized in the early 1980s [3]. Many academics, thought leaders, and decision-makers began establishing the foundation for the current green movement [21]. The worldwide banking industry has begun a corrective and control plan known as "Green Banking" as a result of realizing its obligation and accountability towards resource depletion and the environment [22]. Green banking is becoming more and more popular around the world, both as a component of the traditional banking system and as a stand-alone financial organization in the form of wholly green banks like the Connecticut Green Bank and the New York Green Bank [3]. However, similar to the bulk of green management initiatives, there is a considerable difference between the acceptance of green banking in both developed and developing countries. According to a study, 93 banks spent €232 billion on coal finance between 2005 and 2010 [23]. Therefore, banks have a negative direct and indirect influence on the environment.

The positive impact of Green banking practices is seen by businesses as a crucial strategy for establishing a favorable reputation and aiding in staff retention [24]. Similarly, Riffat et al. [25], argued that green banking improves relationships between businesses, clients, and the government. Another study found that green banking has a big impact on stakeholders' investment choices [26]. Similarly, this study demonstrates how green banking is concerned with the welfare of the community in which it works [2]. The adoption of energy-efficient practices in everyday banking operations and the promotion of E-banking practices to cut the cost of operations in solid forms, such as paper, are recognized as green banking in the daily operations of banks [27].

Green banking requires corporate strategies that put a higher emphasis on social and economic growth in a clean environment [28]. According to the findings of the following studies, the bank now holds everyday operations accountable for the environment, which reduces carbon footprints [29, 30]. Green banking practices are praised by researchers for their various advantages, including their contribution to reducing internal and external risk as well as their improvement of bank image and source of competitive advantage [31]. The research uses data from 713 institutions across 75 countries from 2013 to 2015 to assess the impact of environmental financing and access to finance on the financial performance of the industry internationally [32]. Their findings point to the positive effects of financial access on banks' financial performance as measured by managerial quality and loan expansion. Nevertheless, despite all the advantages, the adoption of green finance is still in its infancy stage in developing economies. These have the effect of decreasing the amount of interest in clean energy projects and the cost-effectiveness of adopting green banking practices [33]. Additionally, a different study carried out in 50 European bank samples indicated that only management topics had a positive correlation with environmental and sustainability performance, but not risk management techniques [34]. This confirms research findings that suggested a positive impact on financial growth through loan growth and management quality [32].

However, other studies indicated that green banking aims to lessen banks' negative direct and indirect environmental impacts by promoting effective strategies to change everyday internal operations and promote green investment initiatives [16]. Using data from the years 2008 to 2017, a study examined the sustainability of the Islamic banking paradigm [35]. Their findings demonstrated a strong correlation between sustainability practices and the financial success indicators of Islamic banks as well as shareholders' viewpoints. However, they discovered a negligible financial performance from a market standpoint. This study argued that green practices in the banking industry have been sparked by their potential negative role in the degradation of the global environment and the depletion of natural resources [3]. They added that many banking operations in the natural environment are potentially harmful, posing negative effects both indirectly and directly. Their study tracks Pakistan's banking sector's transition to green banking. They stressed how important it is for emerging economies to implement green banking. Due to the traditional banking ideology's direct and indirect negative effects on the environment, green banking has emerged [36]. However, with the International Finance Corporation (IFC)'s effort and the creation of the Sustainable Banking Network (SBN) to support green banking in poor countries, the adoption of green banking practices in particular gained considerable importance in 2012 [3]. Therefore, 15 of the 35 countries, have effectively started national guidelines, principles, and policies concerning green banking practices. Due to its direct and indirect negative effects on the environment, the banking sector is one of the most significant stakeholders and areas of interest for those involved in the green banking concept [16]. In contrast to direct consequences, however, banks' indirect effects are a big concern [37]. Banks are regarded as the primary source of financing for the sector in developing countries. According to data, foreign banks funded the coal industry with more than 220 million pounds between 2005 and 2010 [16]. However, Ikram et al. [38] recommended that adopting Quality Environment and Social (QES) standards had a noticeably favorable impact on exports of products and services, particularly in developing countries. This study also suggested that to promote the use of mobile banking, banks should put more effort into improving the convenience of online transactions [39].

2.2 The need for green banking in Sub-Sahara Africa

Sub-Saharan Africa (SSA)is in a unique position to reap the socio-economic and environmental benefits of renewable resources, and the energy efficiency practices as the demand for energy in the continent grows [40]. According to Doku et al. [41] the SSA countries are not developed enough and neither receive sufficient climate funding to address the challenges arising from climate change. Given the severe poverty and lack of development, the region heavily relies on agriculture but above 600 million people in Africa lack the necessities such as water and electricity [42]. In the Horn of Africa, the livestock and agricultural subsectors have suffered greatly in recent decades due to severe environmental degradation of the region's forest regions and climate change [14]. As mentioned above the Somali people mainly participate in climate change via degrading forest deforestation [4]. By the late 1980s, nearly all of Somalia's floodplain woods had been eradicated to make way for irrigated farmland. In 2014, just 10% of the country's surface area was covered by forests, down from 62% in 1980 [43]. The study also found, that since 1990, The woods of Somalia have lost an average of 1% of their area annually. The primary reason for widespread the unsustainable plucking of acacia trees for the manufacturing of charcoal has contributed to deforestation. Where their yearly shipments of charcoal reached their pinnacle in 2011 at $56 million in Somalia [43]. Additionally, the cumulative impacts of several poor rainy seasons have decreased grain output, which has resulted in a dire humanitarian crisis that became a famine in many areas of Somalia in 2011, 2017, and 2022 [44]. Figure 1 illustrates how environmental deterioration, as measured by deforestation, was steady in Somalia between 1990 and 2001. It began to rise in 2001 and peaked in 2005 mostly as a result of Somalia's expanding charcoal export business, which was primarily fueled by massive deforestation. From 2006 through 2013, it fluctuated, but starting in 2014, it stayed the same. The earth's surface temperature rises as a result of agricultural CH4 emissions, which include those from burning agricultural waste and those from the production of rice and animal manure. Figure 1 illustrates a rising trend in Somalia from 1991 to 2005. It subsequently started to decline until 2008 before starting to increase once more in 2009. In conclusion, environmental deterioration and pollution in Somalia are very dynamic and may hurt the country's agricultural output.

Somalia faces significant deforestation [43]. It involves a lack of current understanding, a dearth of global measuring tools, and a focus on the context and use of technology in a specific country. Thus, the majority of Somali banks are not even aware they could have an indirect negative impact on the environment by financing companies that are working in the charcoal industry. A lot of people turned to charcoal as gas prices rose in Somalia as an affordable energy source.

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Figure 1. Environmental pollution and degradation in Somalia

Data source: World Bank, (2022).

2.3 Theoretical perspective

According to a theoretical standpoint, this serves as a starting point. Any investment approach that aims to include both financial return and social/environmental benefit to bring about social change is known as socially responsible investing (SRI). According to Chatzitheodorou et al. [45], it has been asserted that several terms, including ethical, social, sustainability, and investments, have been interlaced into the reasoning behind SRI theory. It has been said that SRI theory emphasizes individual values and societal well-being as crucial factors to take into account when evaluating investment options [46]. According to Newell and Lin Lee [47], SRI theory was perceived as advocating the use of both financial and well-being goals, particularly among microfinance institutions and socially motivated businesses, to combat the growing environmental challenges, create employment, and advance rural and urban development. According to another study, SRI theory employs finance with a social orientation to concurrently advance financial and social objectives and goals [47, 48]. However, according to Browner et al. [49], it has been suggested that owing to obstacles including a lack of paperwork and the usage of green energy, banks have limited information accessible to them in their investments in green initiatives. This can deter banks from making investments. But today's customers have higher expectations since they can identify additional uses for the money they put in and want to see more social good. As banks close, they dramatically affect the environment in both direct and indirect ways [50]. Banks, however, do not have access to enough information and data to support the implementation of green banking. Thus, this study aims to examine the direct and indirect effects of Somali banks on the environment in terms of awareness, daily operations, investments, and strategic policies in the bank system of Somalia, to fill out the empirical gap in the existing body of the literature.

Table 1 provides a summary of the demographic part of the study. The data indicates that 67.7% of the respondents are men and 32.3% are women. Only 5.8% of respondents are beyond the age of 35, with 46.9% of respondents being between 20 and 25 and 47.3% between 25 and 35 years old. According to their degree of education, graduates make up the majority of respondents (71.9%). In terms of their marital status, 63.3 percent were single and 48.6 percent were married. Just 26.5 respondents had more than five years of experience, compared to 38.9% who have between three and five years, 34.5 percent with less than a year, and 34.5 percent with more than five years. Figure 2 shows that the majority of respondents just over 50 percent of the respondents said their bank does not provide any of the green finance products as laid out in Figure 2. Green long-term investment accounts (like agriculture) product that respondents think their bank finances, with 19.91 percent. The second product, which accounts for 11.06 percent, is a green loan (credit). As you can see in Figure 2, the other green financing products that Somali bank employees believe are available in their banks are less than double digits. Thus, this indicates that Somali banks mainly do not offer green financing products to their employees, or they offer negligible investments such as agricultural financing.

Table 1. Respondents profile

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Figure 2. Green finance products

Assessing Somali bank employee awareness of green finance is the first step in the study. Table 2 presents the results. More than 52.2 percent of respondents strongly disagreed or disagreed with the first statement "I have general knowledge about green finance," meaning that the majority of bank employees in Somalia do not have a general understanding of what green finance entails. The second statement, "Generally speaking, I have already acquired enough knowledge about green finance," the majority of respondents gave negative responses (56.2 percent), indicating that the employees lacked general knowledge of what green finance is all about. The third statement, "I have enough information about the advantages of providing green finance" 61 percent of employees either strongly disagree or disagree with the statement, which shows that staff do not receive enough knowledge on the benefits of offering green products to bank clients. fourth statement “I have learned about green finance from media sources." Among the responses, 50% strongly disagree or disagree with such assertion, while 31% strongly agree or agree with that statement. Therefore, the result of this study is in contrast with the study of Barre et al. [4] who found that more than 75% of Somali bank employees are familiar with green finance. Similarly, the result of this study also contradicts the following study conducted in Nigeria which indicates a higher level of awareness of green finance [57]. However, the study revealed that there is a low level of implementation of green finance practices in infrastructure development in Nigeria. Thus, a high level of awareness does not lead to a high level of implementation of green finance practices Nigeria. Last but not least, more than 51% of respondents strongly disagree or disagree with the statement that "I am concerned about green finance," indicating that they are not concerned about the risk of climate change and environmental challenges, whereas fewer than 20% claim they are. Hence, Somali people are less concerned about climate change which indicates the low level of awareness of the risk climate change could bring on them. Furthermore, Cronbach's alpha was used in reliability testing. The quality of construct dependability was tested, and the findings indicate a score of 0.752, which is higher than the necessary threshold of .70 [55]. Therefore, the result of this study is reliable.

Table 2. Level of awareness in green finance

1= strongly agree (%), 5= strongly disagree (%)

The second section of the study studies how Somali banks conduct their daily operations in terms of green finance. Table 3 presents results. The first statement "My bank has initiatives to reduce paper usage and other wastage of materials" by more than half of respondents strongly disagreed or disagreed. Thus, the majority of Somali bank employees feel that their institutions do not limit paper consumption and other waste products that might harm the environment to lessen the danger of climate change, even though only approximately 30% of Somali bank employees agree or strongly agree with the statement. In the second statement, the majority of respondents (more than 53%) disagree or strongly disagree with the statement that "My bank has introduced energy-efficient equipment, system solutions, and practices," indicating that the staff do not feel their banks do so. Nevertheless, only roughly 21% of people strongly or somewhat agree with the statement. Third, the majority 46 percent of employees disagree or strongly disagree with the statement that "My bank uses e-waste management practices," meaning that they believe their banks do not use e-waste management to help reduce environmental issues. Only 31% of employees say their banks do use some form of e-waste management. forth, the statement argued that "My bank has environmentally friendly banking practices (e-mail, intranet, e-statements, online approval system, etc.)" Only 14 percent of respondents agreed or strongly agreed with this claim, with a majority of more than 67 percent, indicating that Somali bank employees do not feel their institutions follow environmentally friendly methods. The fifth statement says "My bank encourages customers to use environmentally friendly banking practices (e-statements, online transfer, etc.)" The majority of respondents roughly 70% strongly disagree or disagree with that statement, while just over 14% agree or strongly agree, showing that Somali bank employees do not believe their institutions encourage their clients to adopt environmentally friendly practices. Six statements, the majority of employees (over 55 percent) strongly disagree or agree with the statement that "My bank regularly arranges seminars workshops to promote environment-friendly practices in daily operations," while only slightly more than 23 percent agree or strongly agree with it. This indicates that Somali bank employees believe their banks do not provide seminars and workshops related to the importance of the environment to increase environmental awareness. Finally, the statement "My bank encourages employees to communicate through digital connectivity" received almost 70% of respondents who disagree or strongly disagree, indicating that Somalian banks do not take into account how their employees interact and whether to use an environmentally friendly method or not. Therefore, bank personnel may not use digital communication. Overall, the daily operations of green finance in Somalia show that the Somali banks do not daily practice green finance activities which is consistent with previous studies [16, 29]. In addition, Cronbach's alpha was used in reliability testing. The findings indicate a score of 0.713, which is higher than the necessary threshold of .70 [55]. Thus, the result of this study is reliable.

Table 3. Daily operations

1= strongly agree (%), 5= strongly disagree (%)

The third section of the study looks at the investments or loans that Somali banks provide in green initiatives. Table 4 presents the findings. The first statement, "My bank provides loans to environmental protection and energy-saving related projects," is strongly disagreed or disagreed with by the majority of respondents (approximately 54 percent). While just slightly more than 25% of Somali bank workers agree or strongly agree with the statement. Thus, this indicates that the majority of them think their local banks do not offer sufficient finances and loans to mitigate the community's risk from climate change. Second, a majority of respondents with more than 45 percent strongly disagree or disagree with the statement, which is that "My bank implements certain independent and unique green initiatives, projects, etc. (e.g., tree planting)" While around 26% of employees strongly agree or agree with the statement. Hence, they think their banks do not take green measures like planting trees to mitigate environmental concerns. Third, the majority of employees, approximately 60%, disagree or strongly disagree with the statement that "My bank promotes and facilitates environmentally oriented enterprises through special grants, loans, and guidance," thus, this indicates that the employees do not believe their banks offer special grants and loans to promote environmental friendly enterprises. However, just over 16% of employees agree or strongly agree with the statement. Fourth, the majority of respondents 54 percent disagree or strongly disagree with the statement that "My bank uses social and environmental management systems or any other mechanisms to evaluate all project proposals," while just over 22 percent agree or strongly agree with it. Therefore, this shows that Somali bank employees feel their banks do not use any mechanisms to evaluate the proposals by checking how they are environmentally friendly proposals. Fifth, the majority of respondents 53.6 percent disagree or strongly disagree with the statement "My bank promotes and facilitates environmental-oriented guidance to promote green projects," while just over 20 percent agree or strongly agree. Thus, this finding suggests that Somali bank employees do not believe their institutions support and facilitate environmentally friendly projects. Finally, the majority of employees over 50% strongly disagree or strongly disagree with the statement that "My bank promotes and facilitates credit line to green projects," whereas just over 22% agree or strongly agree with it. Therefore, this finding shows that Somali bank employees believe their institutions do not provide special credit lines to encourage green projects to address environmental challenges. Overall, the result of this section of investments and loans that Somali banks provide in green finance initiatives indicated that they less care to invest and loan money to promote green investment with is consistent with previous study [29]. likewise, Cronbach's alpha was used in reliability testing, and the findings revealed 0.751, which was higher than the necessary threshold of .70 [55]. Therefore, the result of this section is reliable.

Table 4. Investments in green projects

1= strongly agree (%), 5= strongly disagree (%)

The study's fourth section examines the banks' environmental practices about strategic policies. Table 5 presents the findings. About 51% of respondents strongly disagreed or disagreed with the first claim, which says "My bank participates in the establishment of green branches (energy-efficient buildings/green buildings)". Thus, the majority of the Somali bank employees suggest that their institutions are not opening green branches to contribute to the mitigation of climate change, which might result in environmental disaster, compared to just over 20% who agree or strongly agree with the statement. Second, the statement that "My bank has an environmental (green) policy" similarly by more than 52% of respondents strongly disagreed or disagreed and only 19% of employees agree or strongly agree with the statement. Thus, this indicates that they don't think their banks have environmental policies in place to reduce or adopt environmental hazards. Third statement claimed "My bank has environmental-related agreements with relevant parties/ stakeholders (suppliers, customers, etc.)" The majority of employees 58 percent strongly disagree or disagree with. Therefore, this means the employees think their banks do not have an agreement with their stakeholders, including suppliers, customers, and others, that relates to the environmental protection. Fourth, just over 54 percent of respondents disagree or strongly disagree with the statement that "In my bank, head office level or top management involves environmental protection-related planning and implementation," while just over 20 percent agree or strongly agree. Therefore, this shows that Somali bank employees feel that the top management of the banks are not planning to implement environmental protection plans. Fifth statement says "My bank promotes an environmental friendly policy at corporate level," the majority of respondents disagreed or strongly disagreed with it in a ratio of just over 62 percent. Hence, this indicates that Somali bank employees do not believe their institutions are encouraging or promoting environmental policies at the corporate level. Final statement says "My bank purchases its office supplies, technology, and other items from environmentally friendly companies (such as printers, computers, etc.)" Over 55% of employees strongly disagree or disagree with this statement, compared to just over 17% who agree or strongly agree. Therefore, this shows the Somali bank employees believe their institutions are not buying stationeries from environmentally friendly companies to promote environmental protection. Overall, the result of this study shows that the Somali banks do not have any strategic policies toward green finance which is consistent with the previous studies [29, 16]. Furthermore, Cronbach's alpha was used in reliability testing and the findings revealed 0.727, which was higher than the necessary threshold of .70 [55]. Therefore, the results of this section are reliable too.

Table 5. Banks policy related practices

1= strongly agree (%), 5= strongly disagree (%)