Unlocking Sustainable Entrepreneurship through Green Finance: The Mediating Role of Green Innovation in Pakistani SMEs

Abstract

Sustainability in Small and Medium Enterprises (SMEs) in Pakistan is consistently challenged because of the absence of adequate financial resources, poor innovation potential, and inadequate institutional support for adopting sustainable practices. This study investigates the mediator role between Green Finance (GF) and Sustainable Entrepreneurship (SE) in the process of Green Innovation (GI). The study used a quantitative research design with a sample of 388 employees from SMEs, and the proposed relationships were tested using structural equation modeling (SEM) with Smart PLS 4.0 software. The results indicate that the relationship between GF and SE is partially mediated by GI, and that GF has a significant positive effect on both measures. The results of this study are confirmed by the Resource-Based View (RBV), which emphasizes the need for a combination of access to financial resources and innovative capabilities in order to nurture entrepreneurship for sustainability. It also offers financial and policy implications for policymakers, financial institutions, and SME managers, highlighting the need to link financial instruments to innovation strategies for fast-tracking sustainability transitions. The study contributes to the literature by integrating finance, innovation, and entrepreneurship into a cohesive framework within the SME context of a developing economy.

Keywords: Green Finance, Sustainable Entrepreneurship, Green Innovation, SMEs, PLS-SEM.