Financing the Green Transition: How Green Finance and Renewable Energy Drive CO2 Mitigation

The accelerating demand for climate action has underscored the need to link financial innovation with clean energy adoption. This study examines the interplay between green finance, renewable energy consumption, and CO2 emissions across 15 countries from 2013 to 2022. Green finance is proxied by green bond issuances and environmental protection expenditures, capturing both market-based and fiscal flows. Using panel econometric methods, including fixed effects with Driscoll–Kraay corrections, Prais–Winsten regressions with PCSE, and Feasible Generalized Least Squares (FGLS), the analysis accounts for heteroscedasticity, autocorrelation, and cross-sectional dependence. Results show how green finance significantly reduces emissions, both directly and indirectly, through its positive influence on renewable energy deployment. Renewable energy consumption shows a robust negative association with CO2 emissions, confirming its pivotal role in energy transition. A mediation analysis further demonstrates that renewable energy partially transmits the effect of green finance on environmental performance. The findings highlight the dual function of green finance in mobilizing investment and accelerating decarbonization, offering timely insights for policymakers seeking effective pathways toward sustainable, low-carbon economies.