Effect of Green Innovation on Competitive Advantage of Tier-Three Commercial Banks in Kenya

Despite comprising over 75% of the total number of commercial banks in Kenya, tier-three banks control only 8% of the market share. Many of these banks have resorted to downsizing their staff and reducing branch networks as cost-cutting measures, largely due to the ongoing struggles to achieve a competitive advantage within a highly saturated financial sector. This study investigated the effect of green innovation practices on the competitive advantage of tier-three commercial banks in Kenya. The research was anchored on the Resource-Based View Theory, which posits that a firm’s competitive advantage stems from its ability to strategically deploy internal resources. An ex post facto research design was adopted. The study targeted all 22 tier-three commercial banks in Kenya, comprising a workforce of 3,740 employees. Stratified and simple random sampling techniques was used to select a sample of 361 participants. Data was collected using questionnaires and document analysis. The study established a strong positive effect (R² = 0.433; β = 0.623, t = 13.505, p < 0.001) of green innovation on the competitive advantage of tier-three commercial banks. It was thus concluded that green innovation had a positive and significant influence on the competitive advantage of tier-three commercial banks in Kenya. The study recommended increased investment in green technologies, enhanced institutional support for sustainable banking practices, and the development of policy frameworks that incentivise environmental innovation