When and How Firms Can Promote Green Innovation for Sustainable Development: A Holistic Examination

Green finance has become a key instrument for addressing environmental degradation and supporting sustainable development. However, existing literature has largely focused on its outcomes, with limited attention to the factors that contribute to its effectiveness. Using an input-oriented perspective, this study examines the roles of green innovation, financial development, and research and development (R&D) in promoting green financing and sustainable development. Empirical data from thirty-nine manufacturing companies in Saudi Arabia covering 2011–2025 are analyzed using partial least squares, generalized method of moments, fixed-effects, and random-effects models. The findings demonstrate that green innovation, financial development, and R&D significantly contribute to the effectiveness of green financing. The transition from conventional product innovation to green finance is found to be less challenging than the development of eco-friendly technological innovations, as environmentally friendly products can generate positive financial returns. The study provides policy insights for promoting sustainable industrial growth.