Green finance and artificial intelligence: Catalysts for promoting sustainability?

Abstract

The roles of green finance (GF) and artificial intelligence (AI) are essential to be comprehensively investigated for promoting sustainability. This study uses the TVP-VAR-SV model to reveal the time-dependent interactions among GF, AI, and environmental, social and governance (ESG)-related uncertainty index (ESGUI). The empirical findings demonstrate that GF significantly reduces ESGUI, indicating its stabilizing role in sustainability markets. AI exhibits influences characterised by initial ESGUI elevation during early-stage implementation, except 2024-2025, followed by progressive ESGUI reduction in subsequent phases. It could be concluded that green finance and artificial intelligence promote sustainability, albeit with inherent lags of the latter. GF has a favourable impact on AI, while AI reciprocally enhances GF development during the observed periods except for COVID-19. Empirical comparisons demonstrate the TVP-VAR-SV model’s superior performance relative to the traditional VAR model in capturing time-varying parameter dynamics while maintaining result reliability. Further, other robustness tests, including extended control variables and alternative measures, consistently confirm the core results. Against the backdrop of increased uncertainties globally, this paper puts forward strategies used to augment the contribution of GF and AI in improving sustainability.