Green finance as a solution to environmental decay and toward the sustainable development goal. Evidence and policy insights from the European Union

Abstract

Our planet stands at a crossroads. Climate change's grip tightens, with record temperatures, extreme weather events, and biodiversity loss painting a stark picture. Driven by the stark realities of a planet choked by climate change, rampant pollution, and dwindling resources, nations worldwide have embraced the urgent call for sustainable development. Embodied in the Sustainable Development Goals (SDGs), this ambitious vision seeks to balance economic prosperity with environmental responsibility. From this seed sprung green finance, a blossoming field channeling investments towards renewable energy, clean technologies, and sustainable solutions. In Europe, the landscape reflects this global shift. Countries like Germany lead the charge in renewable energy production, while Sweden pioneers sustainable forestry practices. Yet, challenges remain. Eastern Europe grapples with air pollution, while the bloc as a whole must scale up investments in circular economy and green infrastructure. Despite these hurdles, Europe's commitment to the SDGs is undeniable. From ambitious carbon neutrality targets to innovative green financial instruments, the continent strives to chart a course towards a future where environmental responsibility and economic progress march hand in hand. Our analysis delves into the relationships between green finance, technological innovations, economic complexity, urbanization, energy consumption and ecological footprint and want to facilitate a positive environmental recovery within the European Union. We employ the two-step SysGMM regression method due to its robustness in handling endogeneity and dynamic panel data. Our findings make a convincing case for green finance as a powerful tool for environmental management with an inverse relationship with ecological footprint. On the other hand, technological innovation and urbanization increase ecological footprint and exacerbate environmental degradation. This study suggests that EU governments should increase investment in green financial projects, focus expertise on practical environmental protection inventions and implement practical policies to protect environment.