Financial architecture and environmental sustainability: nonlinear and conditional evidence from OECD economies

Financial systems can intensify environmental pressures through economic expansion but can also support clean technologies, renewable energy investment, and efficient resource allocation. This study examines how financial development, financial inclusion, and digital financialisation jointly relate to environmental sustainability across 30 OECD economies from 2014 to 2024. It develops an integrated financial architecture framework in which these dimensions represent the complementary functions of financial capacity, accessibility, and efficiency. Carbon emissions, ecological footprint, and renewable energy consumption capture aspects of environmental performance. Cross-Sectionally Augmented Autoregressive Distributed Lag and Dynamic Common Correlated Effects Mean Group estimators account for cross-sectional dependence, country heterogeneity, and dynamic adjustment. The findings reveal nonlinear associations between financial development and environmental outcomes. Financial development is associated with higher carbon emissions and ecological pressure at lower levels but improved environmental performance beyond estimated turning points, while renewable energy consumption follows a U-shaped pattern. Financial inclusion and digital financialisation are consistently associated with better environmental performance, with digital financialisation exhibiting the strongest relationship. Institutional quality reinforces favourable outcomes, whereas energy intensity constrains them. Robustness analyses using a principal-component-based composite financial architecture index, alternative estimators, threshold validation, and subsample estimations produce broadly consistent results. The findings indicate that the environmental implications of finance depend on its expansion, accessibility, digital efficiency, institutional setting, and structural conditions. Policies should therefore align financial development, inclusion, digitalisation, institutional quality, and energy efficiency to advance environmental sustainability.