Green Investment Initiatives and Profitability of Manufacturing Firms in Kenya

Manufacturing firms are a cornerstone of Kenya’s economy, contributing substantially to industrial output, employment creation, and export earnings. However, despite their significance, these firms continue to face persistent profitability challenges. In the last decade, Kenyan manufacturing firms have steadily reported declining ROA, a measure of asset efficiency. The main objective of the study was to examine the effect of green investment initiatives on the profitability of manufacturing firms in Kenya. The specific objectives were to determine the effects of energy efficiency investments, renewable energy investments, sustainable waste management investments, and green supply chain investments on the profitability of manufacturing firms in Kenya. The study was grounded in four theories: the Porter Hypothesis, Sustainable Finance Theory, Transaction Cost Economics Theory, and Dynamic Capability Theory. The study targeted 10 Kenyan manufacturing firms that are registered and publicly listed on the Nairobi Securities Exchange (NSE) .The study relied on secondary data drawn from published annual reports, focusing on the profitability indicator Return on Assets (ROA). Results from correlation and regression analyses revealed that all four green investment variables had positive and significant relationships with profitability. The findings revealed that energy efficiency investments had the strongest positive effect on profitability (r = 0.641, B = 0.821, p = 0.000), followed by green supply chain investments (r = 0.241, B = 0.447, p = 0.013) and renewable energy investments (r = 0.182, B = 0.314, p = 0.039). Sustainable waste management investments showed a positive but weaker contribution (r = 0.094, B = 0.192, p = 0.233). The combined green investment initiatives explained 38.6% of the variation in profitability (R² = 0.386), indicating strong explanatory power. The study concludes that green investment initiatives significantly enhance firm profitability, with regulatory policies playing a supportive but limited moderating role. The study recommends manufacturing firms to integrate green practices into their core operations to enhance competitiveness and profitability.