Linking Environmental Sustainability and Financial Resilience through the Environmental Footprints and Their Determinants: A Panel Data Approach for G7 Countries

Abstract

The pursuit of sustainable development has received much attention recently as nations confront increasing environmental, social, and economic difficulties. In order to comprehend sustainable development’s many facets and provide a plan for achieving them, this study conducts a thorough analysis of the concept. The study’s dependent variable, environmental footprint, is based on a research model. On the other hand, financial inclusion, human capital development, green growth, technological innovation, and renewable energy are the independent factors. This study used secondary data collected between 1990 and 2022. To better capture the variable indicators, the index for green growth is constructed using the entropy-weighted technique. The panel dataset problem was resolved by using diagnostic tests, which include cointegration, correlation, cross-sectional dependence, variance inflation factor (VIF), and stationarity tests. The findings of the diagnostic test indicated that a fully modified ordinary least square would be the best approach to use with this panel. According to the findings, the long-term variance is 55%. Renewable energy, green growth, and technological innovation have a substantial negative link with financial risk, while greenhouse gas emissions, financial inclusion, and human capital development have a significant and positive relationship. Environmental sustainability may benefit from policies that the government creates and funds for sustainable development. The findings imply that the government should provide incentives in terms of financial resilience to technological innovations and natural resources so that they would switch to green sources and help to improve the quality of the environment that would be sustainable.