Abstract

Keywords

۱٫ Introduction

۲٫ Literature review

۳٫ Data and methodology

۴٫ Results and analysis

۵٫ Conclusion and recommendation

Declaration of competing interest

Appendix A. Supplementary data

References

Abstract

This study examines the relationship between green finance and carbon dioxide (CO2) emissions in the top ten economies that support green finance (Canada, Denmark, Hong Kong, Japan, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States). This study uses quantile on quantile regression (QQR), introduced by Sim and Zhou (2015), to examine the dependence structure between different quantiles of green finance and CO2 emissions. Our overall findings confirm the negative impact of green finance on CO2 emissions; however, this relationship varies across the different quantiles of the two variables. This variation might be due to green finance market conditions (e.g., bearish or bullish) and country-specific market conditions. The findings in the study confirm that green finance is the best financial strategy for reducing CO2 emissions.

۱٫ Introduction

Since the beginning of the industrial revolution, the financial sector has been a powerful pillar of human growth. The primary role of the global financial sector is to make efficient use of the global savings. Proper use of investment enables improvement in people’s quality of life. However, because of the collapse of the financial system, people have invested their savings in real-estate bubbles and environmentally damaging projects, including those that exacerbate human-induced climate change (Sachs, 2014). Previously, the financial sector ignored the ecosystem, which enabled the emergence or worsening of environmental issues, such as habitat and natural resource depletion, climate change, and pollution.

Finance plays a crucial role in the anthropogenics (i.e., human impact on the environment), yet very little has been done to incorporate environmental issues into finance (Scholtens, 2017). Over the past few years, the financial sector has paid attention to green investments, thereby advancing sustainable growth (Falcone et al., 2018). According to Sachs (2015), green financial instruments can help achieve a green environment. In the process, financial intermediaries and markets have designed financial instruments, such as green bonds, green home mortgages, green loans for commercial buildings, environmental home equity programs, “go green” auto loans, small business administration express loans, and climate credit cards. In addition, Australia launched its first environmental deposit initiative, which consists of medium-to long-term finance tools, which not only finance environmentally friendly projects and business activities but also support sustainable development and climate-related projects directly (NATF, 2007).

Green finance is an intersection between environmentally friendly behavior and the financial and business world (Scholtens, 2017), however, few studies have link finance with ecology. Scholtens (2009) studied the link between the performance and social responsibility of financial institutions. Li and Jia (2017) concluded that environmental finance/sustainable finance is the most effective way to reduce environmental degradation. Green finance encourages investment in new technologies and innovations, including renewable energy (Böhringer et al., 2015). Thus, we are motivated to examine the dynamic impact of green finance on the carbon dioxide (CO2) emissions of the top ten countries that support green finance (Canada, Denmark, Hong Kong, Japan, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States).