ESG practices as capability architecture for sustainable finance in emerging market banking

Existing banking research often treats environmental, social and governance (ESG) practices as disclosure, compliance or performance outcomes, with limited attention to how banks build the internal capabilities needed to operationalize sustainability. This study examines ESG integration as a capability architecture in Tanzanian commercial banks, focusing on how ESG-related practices are constructed, connected and used to support sustainable finance in an emerging-market banking system. The study adopted an interpretivist qualitative design based on semi-structured interviews with 17 key informants, comprising 15 senior bank managers and 2 sector-level stakeholders. The data were analyzed using hybrid thematic analysis and supported by documentary triangulation from bank reports, sustainability disclosures and regulatory publications. The findings identify four interconnected ESG capability domains: digitalization capability, financial inclusion capability, green finance capability and ESG governance integration capability. Digitalization and financial inclusion emerge as foundational capabilities that support operational efficiency, service reach and market access, while green finance and ESG governance integration represent more advanced capabilities linked to climate-sensitive lending, risk screening and portfolio oversight. The study contributes to theory-informed understanding of sustainable finance by showing that ESG capability formation in banking operates through capital steering, including credit allocation, risk screening, green lending and portfolio oversight, rather than through direct natural-resource management. It reframes ESG from a reporting exercise into a capability-building process through which banks organize sustainability within financial intermediation.