Financial system development and climate goals: reducing carbon intensity through inclusion and regulation in BRICS

Environmental sustainability poses a paramount policy imperative for emerging markets, especially the BRICS bloc, which commands a significant portion of worldwide production and greenhouse gas emissions. Leveraging data from 2000 to 2022, this research investigates the influence of key financial system facets, including overall financial development, banking sector development, financial inclusion, stock market capitalization, monetary expansion, and economic growth, on carbon intensity within these economies, with interpretations constrained to this timeframe. Employing panel quantile regression, the study elucidates varying impacts across the carbon intensity spectrum. Findings reveal that banking sector development significantly diminishes carbon intensity in most quantiles, emphasizing its capacity to bolster eco-friendly production and green financing initiatives. Financial inclusion also contributes to lower carbon intensity at the median and higher quantiles, although early-stage financial access can increase emissions in lower-emission contexts. Conversely, Stock market capitalization is associated with higher carbon intensity across all quantiles, underscoring the carbon-intensive nature of stock market-financed growth in the region. Monetary expansion exhibits a modest mitigating effect that is statistically significant only at the median quantile, indicating its efficacy hinges on specific conditions. Economic growth, meanwhile, amplifies carbon intensity at higher quantiles. Policymakers in BRICS nations should prioritize banking sector enhancements and financial inclusion while regulating stock market activities and monetary policies to mitigate carbon intensity and advance sustainable development.