Environmental Policy Stringency and Innovation: Unlocking Sustainable Growth in G20 Economies

ABSTRACT This study explores the interrelationships among environmental policy stringency (EPS), environmental technology, and research and development expenditure (R&D) in advancing sustainable development (SD) within G20 economies. G20 nations, as key contributors to global GDP and CO 2 emissions, confront the challenge of balancing economic growth with environmental stewardship. We find that stringent environmental policies and enhanced R&D investments are strong positive predictors of sustainable economic development, while environmental technology negatively predicts the SD in the short‐term. Our study also demonstrates that EPS, ET, R&D, natural resource rent (NRR), trade (TR), GDP, and SD are interconnected. The results emphasize the impact of shocks within one economy on others and underscore the necessity of accounting for heterogeneity in economic models. The relationships among these variables remain stable over the long term, despite potential short‐term deviations. It suggests that these policies and investments gain long‐term benefits, which enables the separation of economic growth from environmental degradation. Overall, this study provides valuable insights for policymakers by emphasizing the need for stringent environmental strategies and integration practices to navigate the complexities of fostering sustainable development in the G20 economies.