Pathways Toward Decarbonization: Assessing the Interplay of Crowdfunding, Environmental Policy Stringency, and Green Innovation in South Africa

ABSTRACT Industrialization and urbanization have intensified environmental degradation and climate change, with macroeconomic policies often overlooking environmental costs in the pursuit of short‐term growth. To bridge this gap, this study constructed a composite Environmental Pollution Index (EPI) that combines carbon dioxide, methane, nitrous oxide, and particulate matter. Using this index, this study examines how green innovation, crowdfunding, and environmental policy stringency are associated with pollution dynamics in South Africa. The dynamic ARDL simulation is applied to forecast the short‐ and long‐run effects of each driver on pollution in South Africa between 1990 and 2020 within the Environmental Kuznets Curve (EKC) framework. The long‐run results show that crowdfunding and green innovation reduce pollution, while environmental policy stringency is associated with higher pollution, reflecting enforcement lags and transition costs. The short‐term findings show that crowdfunding and environmental policy stringency reduce pollution, whereas green innovation initially increases pollution. Furthermore, the interaction terms indicate that crowdfunding enhances the effectiveness of both green innovation and environmental policy stringency in reducing pollution. However, the EKC hypothesis was not validated in South Africa. Therefore, this study recommends the implementation of policies that mobilize crowdfunding to encourage investment in sustainable technologies and the enforcement of well‐designed environmental regulations to address displacement effects and align growth with sustainable development.