Towards sustainable initiatives: Evidence from green finance mitigating ecological footprint in East Asia and Pacific nations

Abstract

Green finance serves as a bridge between development and ecological sustainability. It provides a roadmap for countries to accomplish sustainable development goals by simultaneously curbing their ecological footprint. Green financing prioritizes eco-friendly technologies, sustainable behaviors, renewable energy, and green infrastructure, promoting positive changes. This study examines the role of green finance on the ecological footprint of 11 East Asian and Pacific countries from 2000 to 2023. This study uses different diagnostic tests to prove the existence of cross-sectional dependency, non-normality, and slope heterogeneity. The coefficients are estimated using the fully modified ordinary least squares (FMOLS) approach and panel quantile regression at different quantiles. The results show the validity of an inverted U-shaped relationship between green finance and the ecological footprint. Further analysis explores that at the middle quantile, all selected countries except Mongolia and the Philippines, while the FMOLS approach shows that all countries’ green finance reduces their ecological footprint. Additionally, globalization reduces the ecological footprint, while economic growth, industrialization, and urbanization increase the ecological footprint. This study recommends that to fight against climate change, the selected countries should focus more on green finance. Financial institutions should provide funds only for environment-friendly technologies.