Green Finance and <scp>ESG</scp> Readiness: Bridging the Gaps in Sustainability Transitions

ABSTRACT This study examines the intersection of green finance and economic, social, and governance (ESG) readiness through the lens of sustainable transition theory, analyzing data across 32 higher and 25 lower ESG‐ranked countries from 2014 to 2022. Employing econometric methods like OLS, FMOLS, GMM, and quantile regression, we find that green finance plays a critical role in enhancing ESG readiness. Access to credit is a fundamental enabler of economic activity, but its impact on ESG transitions remains contingent upon institutional capacity and regulatory alignment. Our findings indicate that renewable‐energy investments consistently act as catalysts for sustainability transitions. Green bonds emerge as niche innovations, but their effectiveness depends on the maturity of the financial market. A cross‐sectional analysis highlights the presence of path dependencies in ESG development, particularly in higher ESG‐ranked countries. These insights are vital for policymakers aiming to foster sustainability transitions through tailored market interventions and support for emerging green finance initiatives.