Nexus among Financial Literacy, Financial Attitude, Financial Experience and ESG Investment in the Banking Sector of Pakistan

Abstract

Purpose: This study aims to examine the role of financial literacy in shaping investors’ engagement in Environmental, Social, and Governance (ESG) investments within the banking sector. Specifically, it investigates the direct effect of financial literacy on ESG investment, the mediating role of financial attitude, and the moderating effect of financial experience on the relationship between financial attitude and ESG investment.

Design/Methodology/Approach: A quantitative research design was employed. Data were collected from consumers of sustainable financial instruments and green financial products (e.g., green sukuk, green bonds, Renewable Energy Refinance Schemes, green loans, green mortgages, green funds, and sustainable agriculture financing) offered by the banking sector of Pakistan, including Meezan Bank, MCB Bank, and Habib Bank Limited (HBL). The data were analyzed using SmartPLS 4.

Findings: The results indicate that financial literacy has a significant positive effect on ESG investment. Financial attitude partially mediates the relationship between financial literacy and ESG investment, indicating complementary mediation. Furthermore, financial experience significantly moderates the relationship between financial attitude and ESG investment, strengthening the association.

Research Limitations/Implications: The study is limited to selected banks within Pakistan and focuses on specific sustainable financial products, which may affect the generalizability of the findings. Future research may extend the model to other sectors and geographical contexts to enhance external validity.

Practical Implications: The findings suggest that policymakers and banking institutions should enhance financial literacy and foster positive financial attitudes among investors to promote ESG investment. Additionally, improving investors’ financial experience can further strengthen ESG-oriented investment behavior.

Originality/Value: This study contributes to the growing literature on sustainable finance by integrating financial literacy, financial attitude, and financial experience into a comprehensive model explaining ESG investment behavior in the context of a developing economy.