Financing sustainability: how green finance influences the ecological footprint in selected BRICS+ nations

Abstract

This study aims to explore the role of green finance in achieving a cleaner environment. More specifically, it examines the short- and long-run impacts of green finance on environmental degradation. This study uses balanced panel data for a selected set of seven BRICS + nations, covering 2000–2023. It uses a panel Autoregressive Distributed Lag (ARDL) or a pooled mean group (PMG) model to assess the impact of green finance on ecological footprint (EFP). The panel ARDL model provides long- and short-run coefficients and an error-correction term, clearly showing the dynamics of the relationship between green finance and environmental sustainability. The findings reveal that green finance significantly and negatively affects the EFP in the long run, but has no such impact in the short run. As green finance supports environmentally friendly investments in an economy, it can reduce harmful environmental emissions over time, but because these projects require longer gestation periods, the beneficial impact on the environment does not appear in the short run. Green finance plays a crucial role in the green transformation of the financial system by promoting environmentally friendly investments. Green finance instruments such as green bonds, sustainability-linked loans and carbon credit financing are valuable for financing environmentally friendly projects and reducing EFPs. This study adds to existing literature on green finance by exploring its impact on EFP. Research on this field is relatively scarce in the existing literature for BRICS+.