ESG practices emerge as hidden capability architecture powering sustainable finance in emerging market banking

For years, environmental, social and governance practices in banking have been framed as a matter of disclosure: banks publish sustainability reports, tick compliance boxes, and investors score the results. A new study from Tanzania argues that this framing misses the point entirely. In emerging-market banking systems, ESG is less a reporting exercise and more a capability-building process, an internal architecture through which banks organize sustainability within the everyday machinery of financial intermediation. The research, published in Discover Sustainability, examines how Tanzanian commercial banks construct, connect and deploy ESG-related practices to support sustainable finance, and its findings suggest a fundamentally different way of understanding what ESG actually does inside a bank.

The study, led by Daudi Kitomo of the National Institute of Transport in Dar es Salaam, together with Baltazar Namwata and Emmanuel Lulandala of Moshi Co-operative University, adopted an interpretivist qualitative design built around semi-structured interviews with 17 key informants. Fifteen of these were senior bank managers drawn from Tanzanian commercial banks, and two were sector-level stakeholders with a system-wide view of the industry. The researchers analyzed the interview data using hybrid thematic analysis, a technique that combines data-driven and theory-driven coding to surface patterns in how informants describe their organizations. To guard against the biases inherent in self-reporting, the team triangulated the interview findings with documentary evidence from bank reports, sustainability disclosures and regulatory publications.

The central analytical move of the paper is to reframe ESG as a capability architecture. Rather than treating ESG practices as performance outcomes to be measured or compliance obligations to be satisfied, the researchers asked how banks build the internal capabilities needed to operationalize sustainability. This distinction matters because banking, unlike manufacturing or extractive industries, does not manage natural resources directly. A commercial bank’s environmental footprint is largely indirect: it flows through the credit decisions, risk screens and portfolio choices that steer capital toward or away from climate-sensitive activities. The study shows 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.

From the thematic analysis, four interconnected ESG capability domains emerged. The first is digitalization capability, the ability of banks to deploy digital technologies for operational efficiency, service reach and data handling. The second is financial inclusion capability, the capacity to extend market access to populations and enterprises historically excluded from formal banking. The third is green finance capability, which encompasses climate-sensitive lending and the financial products that channel capital toward environmentally beneficial activity. The fourth is ESG governance integration capability, the embedding of sustainability considerations into risk screening, portfolio oversight and the governance structures that guide lending decisions. These domains are not isolated silos; the study describes them as interconnected layers of a single architecture.

The layering is the study’s most technically interesting finding. Digitalization and financial inclusion emerge as foundational capabilities. They support operational efficiency, service reach and market access, and in doing so they create the infrastructure on which more advanced ESG capabilities depend. A bank that cannot reach customers digitally or extend services to underserved markets lacks the operational base for green lending at scale. Green finance and ESG governance integration, by contrast, represent more advanced capabilities linked directly to climate-sensitive lending, risk screening and portfolio oversight. The implication is a developmental sequence: banks in emerging markets build sustainability capability from the bottom up, with digital and inclusion capabilities forming the base of the stack and green finance and governance integration forming the upper tiers.

This capability-based view carries significant theoretical weight. Existing banking research, the authors note, often treats ESG practices as disclosure, compliance or performance outcomes, with limited attention to how banks build the internal capabilities needed to make sustainability operational. By showing that ESG integration functions as a capability architecture, the study reframes ESG from a reporting exercise into a capability-building process through which banks organize sustainability within financial intermediation. In practical terms, a bank’s sustainability performance is not simply a function of what it discloses; it is a function of what it can do, and what it can do depends on the capabilities it has constructed across digital infrastructure, market reach, green products and governance.

The emerging-market context is central to the argument. Tanzanian commercial banks operate in a system where sustainability pressures, regulatory expectations and market demands intersect differently than in advanced economies. Green finance capability in such a system cannot simply be imported from global frameworks; it must be constructed locally, often on top of digitalization and financial inclusion capabilities that emerging-market banks have developed rapidly in recent years. The study’s evidence suggests that the mobile-first, inclusion-driven character of East African banking may be an advantage for ESG capability formation, because the foundational layers of the architecture, service reach and market access, are already well developed. Banks that have spent a decade extending digital services to unbanked populations have, in effect, been building the base of the ESG stack without labeling it as such.

The methodological rigor of the study deserves attention. The hybrid thematic analysis allowed the researchers to move between informant descriptions and theoretical concepts, identifying capability domains that are grounded in the data but connected to broader debates about sustainable finance. Documentary triangulation from bank reports, sustainability disclosures and regulatory publications strengthened the validity of the interview findings, ensuring that the capability domains identified were not artifacts of managerial self-presentation. The research received ethical approval from the Directorate of Research and Postgraduate Studies of Moshi Co-operative University, and a government research permit was granted, with informed consent obtained from all participants prior to the interviews.

The findings also clarify where banks’ sustainability influence actually lies. Because banks steer capital rather than manage resources, their ESG capabilities are capabilities of allocation: the ability to screen credit for climate risk, to lend green, to oversee portfolios for sustainability performance, and to integrate ESG considerations into governance. This is a subtle but consequential reframing. It means that the environmental impact of a banking system is determined by the quality of its capital-steering capabilities, not by the volume of its sustainability reporting. A bank with strong ESG governance integration capability can reshape its entire credit portfolio, shifting capital away from climate-vulnerable activities and toward resilient ones, and that shift is where the real environmental leverage of banking resides.

For the global sustainable finance debate, the study offers a capability-informed understanding of how ESG works in emerging-market banking. It suggests that policymakers and regulators seeking to accelerate sustainable finance should focus less on disclosure mandates and more on capability formation: supporting the digital infrastructure, inclusion programs, green finance products and governance mechanisms through which banks build sustainability into intermediation. It also suggests that the four capability domains identified here, digitalization, financial inclusion, green finance and ESG governance integration, may provide a transferable framework for examining ESG capability formation in other emerging-market banking systems. As climate risk reshapes credit markets worldwide, the banks that matter most may be those quietly building the internal architecture to steer capital toward a sustainable future, one capability at a time.

Subject of Research: ESG practices as capability architecture for sustainable finance in emerging market banking

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

Article References: Kitomo, D., Namwata, B., & Lulandala, E. (2026). ESG practices as capability architecture for sustainable finance in emerging market banking. Discover Sustainability. https://doi.org/10.1007/s43621-026-04662-z

Image Credits: AI Generated

DOI: 10.1007/s43621-026-04662-z

Keywords: practices, capability, architecture, sustainable, finance, emerging, market, banking, scientific research