Green Financing and Sustainability Reporting among SMEs: The role of Pro-environmental Behavior and Digitization

Abstract

Despite the iconic contribution of SMEs to national and international development, it is widely recognized that they could threaten the circular economy due to their inadequate resources. In light of this, the paper put forward the resource-based view theory in order to comprehend the motivations behind SMEs’ engagement in environmentally-friendly activities and, consequently, to get to the bottom of their sustainability disclosure. To this end, the study examined the effect of green financing on sustainability reporting phenomenon. Secondly, the mediation effect of pro-environmental behavior in the relationship between green financing and sustainability reporting was assessed. Finally, the research determined the moderation effect of digitization in the relationship between pro-environmental behavior and sustainability reporting. Data from 352 SMEs from Ghana were collected between May and June 2024, by employing the structured questionnaire. The data was analyzed through Structural Equation Modeling, performed with Amos (v.23). The study found the effect of green financing on sustainability reporting to be positive and significant. Pro-environmental behavior was revealed to partially mediate the relationship between green financing and sustainability reporting. The relationship between pro-environmental behavior and sustainability reporting was also found to be positively moderated by digitization. The study’s findings facilitate the integration of digitization in SMEs’ operations, and could be used to foster the promotion of green financing policies among SMEs, governments, and non-governmental agencies. The outcomes of the study aim at guiding and stimulating further studies on the promising relationship between digitization and sustainability reporting in the context of SMEs in emerging economies. Future studies are encouraged to investigate how business activities are influenced by specific green financing policies such as green bond since the present research considered the general perspective of green financing.