The Nexus Between Green Finance, Renewable Energy Consumption and Technological Innovation: Evidence From G20 Economies

ABSTRACT

Green finance is intended to support decarbonisation, yet an average emissions relationship may conceal differences across financing instruments and the conditional emissions distribution. This study examines these differences in G20 economies during 2012–2018, alongside renewable energy consumption (RE) and research and development expenditure (RD). A Green Finance Index (GFI) combines green credit, green securities and green investment using principal component analysis. Fixed‐ and random‐effects models provide mean benchmarks; panel quantile regression examines distributional heterogeneity; and continuously updated fully modified and bias‐corrected estimators assess long‐run associations in a common‐factor framework. Panel Granger tests examine predictive feedback. GFI is negatively associated with CO ₂ emissions in the fixed‐effects model (−0.0410) and the two long‐run models (−0.025 and −0.023). Its quantile coefficients, however, are negative at Q10–Q20 and Q60–Q95 and positive at Q30–Q50. RD is negatively associated with emissions throughout the reported quantiles, whereas RE changes from positive coefficients at Q10–Q40 to negative coefficients at Q50–Q95. Component estimates further distinguish consistently negative green‐securities coefficients from sign reversals in green credit and investment. Thus, a favourable average association does not establish uniform environmental performance across instruments or emissions quantiles. The findings motivate instrument‐specific monitoring, verified environmental outcomes and complementary renewable energy and innovation policies. The short observational panel and measurement uncertainty limit causal interpretation and generalisation beyond the sample period.