Examining the Moderating Role of Institutional Quality in the Financial Inclusion‐Environmental Sustainability Nexus: Evidence From Sub‐Saharan Africa

ABSTRACT This study examines the relationship between financial inclusion and environmental sustainability in Sub‐Saharan Africa, with emphasis on the moderating role of institutional quality. Using annual panel data from 47 Sub‐Saharan African countries spanning 1995–2022, we employ a two‐step System Generalised Method of Moments (GMM) estimator to account for dynamic persistence, potential endogeneity, and unobserved heterogeneity. Financial inclusion is operationalised as a composite index constructed through a two‐stage Principal Component Analysis (PCA) across three dimensions. In contrast, institutional quality is similarly constructed via PCA from six World Governance Indicators. Results suggest that financial inclusion is positively and significantly associated with environmental sustainability, and that this association is stronger in the presence of higher institutional quality. Disaggregated analysis across the three dimensions of financial inclusion reveals that these associations hold across access, usage, and quality, though with varying magnitudes. These findings are consistent with theoretical transmission mechanisms operating at the household, firm, and institutional levels. The results carry implications for policy design in Sub‐Saharan Africa, suggesting that financial inclusion programmes may be more environmentally effective when accompanied by institutional reforms that strengthen governance, regulatory capacity, and accountability.