Economic policy uncertainty and environmental quality: unveiling the moderating effect of green finance on sustainable environmental outcomes

Xinyue Sun, Yi Dong (), Muhammad Nouman Shafiq (), Pilar Gago- de Santos and Seemab Gillani
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Xinyue Sun: University of Chinese Academy of Sciences
Yi Dong: University of Chinese Academy of Sciences
Muhammad Nouman Shafiq: Xi’an Jiaotong University
Pilar Gago- de Santos: Complutense University of Madrid
Seemab Gillani: Xi’an Jiaotong University

Palgrave Communications, 2025, vol. 12, issue 1, 1-12

Abstract: Abstract Economic policy uncertainty (EPU) has become a prominent concern in recent years, especially in emerging economies, where policy shifts and regulatory volatility can have far-reaching implications for sustainable development. Environmental quality, a key indicator of long-term sustainability, is often vulnerable to such uncertainty, as it may lead to delayed or inconsistent environmental policies and investments. This paper inspects the effects of EPU on environmental quality in the BRICS nations from 2000 to 2023. The research demonstrates how green finance, through the application of advanced econometric methodology such as the method of moments quantile regression (MMQR), moderates the EPU-environment nexus. Findings indicate that environmental quality shows negative effects from EPU, while countries with weak environmental governance experience maximum degeneration of environmental quality. The study demonstrates that green finance operates as a substantial moderator, which enables the reduction of negative effects caused by EPU. Environmental sustainability investments in green finance serve to shelter negative economic conditions and improve ecological resilience. The study supports the argument that strengthening green financing represents an essential policy mechanism for improving environmental outcomes in unstable economic periods, particularly in developing nations.

Date: 2025
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DOI: 10.1057/s41599-025-05212-0

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