Empowering sustainability: The role of FinTech and institutional quality in shaping sustainable finance for environmental and social change

The growing concern about environmental sustainability has driven the emergence of FinTech solutions that can promote sustainable finance (sustainable finance index (SFI)) and incorporate environmental, social, and governance aspects. However, significant challenges remain that limit its scope and influence, and further research is necessary to clarify its role and effectiveness in the sustainability domain. The main objective of the study is to investigate the interrelationship among FinTech, institutional quality (institutional quality index (IQI)), sustainable finance (SFI), and environmental and social sustainability in the G20 economies. The study employs a battery of methodological tools, including the Method of Moments-Quantile Regression, System-Generalized Method of Moments, and Panel Quantile-on-Quantile Kernel Regularized Least Squares, using panel data covering the period from 2004 to 2023. The empirical results show that FinTech enhances the SFI, and its impact is heterogeneous across various levels of sustainable finance distribution. IQI moderates this association, showing that strong governance, high-quality regulatory frameworks, and sound legal institutions are essential to maximizing FinTech's influence on the SFI. The results also support the idea that the SFI is environmentally and socially sustainable, as evidenced by reductions in ecological footprint and improvement in social welfare. However, FinTech development increases the ecological footprint, creating a sustainability paradox unless it is compatible with green infrastructure, clean energy transitions, and strong institutional frameworks. The study therefore recommends scaling FinTech and SFI initiatives by strengthening institutions, offering incentives to promote green innovation, and harmonizing policies and strategies to achieve socially inclusive, environmentally sustainable development in G20 member states.