The Granger-Causality between Green Finance and Environmental Sustainability: Evidence from G7 Countries

Green finance plays a pivotal role in advancing sustainable development by channeling investments into renewable energy, sustainable agriculture, and energy-efficient technologies, thereby reducing greenhouse gas emissions and promoting resource conservation. This study investigates the causal relationship between green finance (GF) and environmental sustainability (ES) in G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) over the period 1990–2021. The results highlight a bidirectional causality between GF and ES in Germany and the USA, indicating mutual reinforcement between green finance and environmental sustainability. For Canada and Japan, the analysis identifies unidirectional causality from GF to ES, suggesting that green finance drives improvements in environmental sustainability. Conversely, no causal relationships are observed for France, Italy, and the UK, pointing to heterogeneity in the GF-ES nexus across nations.