Assessing the Role of Green Finance in Environmental Sustainability: International Evidence from the EKC Perspective

Faisal Ijaz, Rehmat Ullah Awan and Shamrez Ali

Sustainable Business and Society in Emerging Economies, 2025, vol. 7, issue 4, 821-830

Abstract: Purpose: This research explores how financial investments focused on environmental projects that can help lessen harm to the environment and promote the environmental sustainability. In this, Environmental Kuznets Curve concept is also employed to assess whether the EKC idea holds true when environmentally conscious financial practices are taken into account. Additionally, the study investigates if using green finance, changes the EKC's point where it shifts direction. In doing so, reshapes the connection between economic expansion and the condition of the natural world.Methodology: The dynamic panel that has 90 countries between 2008 and 2019 is used to employ the two-step System GMM estimator aimed at overcoming endogeneity, heterogeneity, and persistence in emissions. The EKC framework is expanded to include the green finance, and there are a set of control variables, including the industrial share, foreign direct investment, urbanization, regulatory quality, and a dummy variable of the status of the development.Findings: The results shows that green finance reduce the CO2 emissions, which proves the vulnerability of its importance as a decarbonization policy instrument. The negative coefficient and statistical significance demonstrate that the investment in the channeling capital towards sustainable projects is an effective measure to curb environmental degradation. The rise of Green finance undermine the EKC hypothesis. Since green finance provides the funds toward sustainable green projects like renewable energy, green technology and green investment, the EKC does not hold.Implications: The research incorporates green finance into the EKC framework and thus indicates its efficacy variability in the development stages. The results emphasize the significance of designing green finance policies that support renewable energy adoption and environmentally sustainable. Policymakers should encourage the effective green financial instruments. Strong and credible green finance structures can support low carbon transitions in both developed and developing economies.

Keywords: Carbon Emission; EKC; Green Finance (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:src:sbseec:v:7:y:2025:i:4:p:821-830

DOI: 10.26710/sbsee.v7i4.3609

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