Green Finance as a Catalyst for Sustainable Development: Evidence from G7 Countries

The escalating environmental degradation, defined as the deterioration of the natural environment through depletion of resources, pollution, and ecosystem destruction, poses a significant threat to sustainable development, prompting the critical need to explore effective financial mechanisms to address this issue. This investigation enhances the existing literature by analyzing the interplay between green finance, environmental degradation, and specific interaction mechanisms such as economic policy uncertainty, investor protection, and the Paris Agreement providing robust insights into sustainable development strategies for G7 countries. Using data from G7 countries spanning 1998 to 2023, we employ panel fixed effect estimates to analyze the relationship between these variables. Our findings support the supposition that green finance favorably influences environmental degradation, whereas sustainable growth is adversely influencing it. Moreover, our research indicates that the Paris Agreement in 2015, investor protection indices, and low economic policy uncertainty enhance the positive impact of green finance on sustainable development. Our study highlights the importance of integrating green finance into policy frameworks to promote sustainable development and mitigate environmental degradation adverse influence.