Financing the green shift: the role of financial inclusion and policy stringency in OECD energy transition

Abstract

The transition toward sustainable energy systems has become a global priority, especially among OECD countries that account for a significant share of global emissions. This study examines how financial inclusion influences the pace of energy transition within these economies and examines how environmental policy stringency and global uncertainty conditions this relationship. Using panel data for 20 OECD countries from 2004 to 2023, the study applies fully modified and dynamic ordinary least squares estimators as well as the two-step System Generalized Method of Moments to address potential endogeneity and heterogeneity. The results reveal that financial inclusion significantly promotes energy transition by facilitating access to capital for renewable energy investment and efficiency improvements. Moreover, stringent environmental policies enhance this positive relationship, while higher global uncertainty weakens it by discouraging long-term green investment. These findings highlight the importance of combining inclusive financial systems with consistent environmental regulation to accelerate the shift toward low-carbon energy in advanced economies. The study provides policy insights for governments and financial institutions to design instruments such as green bonds, de-risking mechanisms, and targeted financial inclusion strategies that foster sustainable energy transformation and climate resilience.