Transitioning to a low-carbon economy: The impact of green finance policies in BRICS nations

This study addresses the pressing challenge of transitioning to a low-carbon economy in BRICS nations by investigating the role of green finance policies in enhancing energy efficiency and driving sustainable economic growth. The primary objective is to evaluate the effectiveness of green credit incentives and transformative insurance in facilitating the shift from high-carbon to environmentally friendly energy systems. The analysis covers the period from 2007 to 2021, focusing on the BRICS economies with specific emphasis on China's regional dynamics. Using an integrated Dynamic Stochastic General Equilibrium (DSGE) model and Spatial Autoregressive (SAR) framework, the study captures both economic dynamics and spatial spillover effects of green finance. Key empirical findings reveal that: (1) green finance has a significant and positive impact on energy efficiency, with strong direct and indirect effects across provinces; (2) spatial autocorrelation exists in energy usage, indicating that policy impacts diffuse geographically; (3) the synergistic effect of internet development and environmental regulation enhances green finance effectiveness; (4) regional disparities show stronger green finance impacts in eastern and western China compared to central regions; and (5) robustness checks using SDM-Wij and 2SLS confirm the stability and reliability of results. The study concludes that combining green credit with transformative insurance is more effective than implementing either policy alone and recommends a balanced approach to carbon regulation that fosters low-carbon technological innovation without impeding economic growth. Policy implications suggest expanding ESG-based credit frameworks and tailoring financial tools to support emission-intensive sectors transitioning toward sustainability. • Green finance strongly improves energy efficiency in Chinese provinces. • Spatial spillover effects show regional clustering of energy outcomes. • SDM model best captures direct and indirect provincial policy impacts. • Eastern regions outperform western ones in green credit and efficiency. • Internet and regulation significantly enhance green finance effectiveness.