Investing in the Future: Financial Solutions for Renewable Energy and Sustainable Environment

ABSTRACT The current study aims to introduce a systematic approach to understanding the key role of the financial sector in environmental quality. To resolve the uncertainty, this study selects three financial proxies—green bonds, financial depth, and financial stability—in the case of Germany, spanning from 1990 to 2020. It deliberates the economic complexity index, urbanisation, technical diffusion and renewable energy consumption (REC) as environmental factors to extend the STIRPAT model. The investigated outcomes demonstrate a supportive role for technical diffusion, green bonds, and renewable energy in promoting environmental sustainability. The empirical analysis reveals that technological diffusion and renewable energy contribute significantly to improving environmental quality in Germany. At the same time, increasing financial depth, financial instability and urbanisation tend to increase environmental pressure. Furthermore, the financial sector, particularly through green bonds, is an effective transmission channel linking renewable energy financing to emissions reductions. The findings highlight the importance of promoting technological diffusion and strengthening green finance mechanisms to support Germany's transition to a low‐carbon economy. This empirical research work aims to revisit the Environmental Kuznets Curve (EKC) and the Renewable Environmental Kuznets Curve (RKC). It validates that the turning point of the RKC occurs earlier than that of the EKC. The adoption of green financial activities and the utilisation of renewable energy are highly recommended to achieve the desired level of sustainability.