Sectoral green finance thresholds for managing carbon transition risks: an input–output network approach with evidence from Malaysia

Abstract Green finance is an important instrument for supporting low-carbon transitions; however, its effectiveness depends on targeted allocation that balances emission reduction with economic stability. In Malaysia, which has committed to achieving net-zero emissions by 2050, the sectoral distribution of green finance remains uncertain, particularly given complex inter-industry linkages. This study addresses this issue by developing a sectoral input–output framework to estimate indicative green finance thresholds associated with managing carbon transition risks. The approach integrates carbon intensity (CI) and Hypothetical Extraction Centrality (HEC) to capture environmental exposure and systemic importance across the national production network. The results suggest that implied green finance needs are concentrated in a limited number of sectors. Electrical and optical equipment emerges as a systemically important sector, while electricity, gas, and water supply show high carbon intensity. Additional sectors, including coke, refined petroleum and nuclear fuel, wholesale and retail trade, and basic and fabricated metals, are associated with relatively higher estimated financing levels. In contrast, service-oriented sectors appear to exhibit lower transition risks. Overall, the findings highlight how scenario-based, sector-specific allocation can provide insights into potential pathways for reducing emissions while maintaining macroeconomic stability. However, these estimates are best understood as indicative, model-based benchmarks that reflect the structural assumptions of a static, one-period input–output framework. The study offers a scalable analytical approach that may help inform green finance discussions in Malaysia and other emerging economies.