The role of green finance in attaining environmental sustainability within a country's ESG performance

Abstract

The ongoing issues that follow climate change require the implementation of relevant strategies and instruments to accelerate countries’ efforts toward environmental sustainability. Thus, the pursuit of environmental sustainability has become a global imperative as countries increasingly adopt measures to enhance their environmental, social, and governance (ESG) performance. Moreover, an effective system of financial support is needed. This paper aims to assess the impact of green finance on the environmental dimension of ESG performance in European Union (EU) countries from 2008 to 2020. The study applies the following methods: (1) a spatial Durbin model to examine the relationship between green finance and environmental performance within the EU context and (2) entropy methods to assess the environmental dimension of ESG performance. The findings reveal that green finance initiatives play a significant role in driving positive environmental outcomes within a country's ESG performance. By channeling financial resources toward environmentally friendly projects and businesses, green finance facilitates the transition to a low-carbon and resource-efficient economy. It enables the implementation of renewable energy projects, energy efficiency improvements, sustainable infrastructure development, and ecosystem preservation efforts. These initiatives contribute to reducing greenhouse gas emissions, mitigating climate change risks, conserving natural resources, and protecting biodiversity.