Green finance, renewable energy and capital formation in the global energy transition

Introduction This paper examines the combined effects of green finance, renewable energy production and consumption, and capital formation on the ecological footprint (EF) in 76 developing countries over the period 2000-2022. Methods Using the STIRPAT framework and the two-step System GMM estimator, the study addresses endogeneity, heteroskedasticity, and dynamic persistence to provide robust evidence on the determinants of environmental sustainability. Results and discussion Results show that green finance, proxied by public investment in renewable energy, and renewable energy consumption significantly reduce EF, confirming their role in mitigating environmental pressure. In contrast, renewable energy production, gross capital formation, and trade openness increase EF, suggesting that production inefficiencies, fossil fuel dependence, and energy-intensive investment patterns offset the potential benefits of green initiatives. Remittances and urbanization are found to improve environmental quality, indicating that income inflows and sustainable urban development can support ecological resilience. The findings underscore that green finance and renewable energy consumption are effective tools for reducing ecological pressure only when accompanied by efficient technologies and targeted capital allocation. Policymakers should therefore prioritize redirecting investment toward clean sectors, enhancing renewable energy technologies, and strengthening regional cooperation to achieve a sustainable balance between economic growth and environmental protection.