The Nexus between Green Finance and Environmental Quality in China

Sustainable development maintains a balance between economic growth, environment, and standard of living. Many countries worldwide are facing environmental degradation, which has become a major obstacle to economic growth. The financial sector has played an important role in developing economic sectors by providing quick necessary funds, and the environmental sector is no exception. Therefore, this study aims to investigate the nexus between green finance and financial innovation and their impact on the environmental quality situation in China from 1995 to 2021. To investigate the financial and environmental nexus, we have applied the ARDL model. The results confirm that the long-term projection associated with green finance significantly affects CO2 emissions. Similarly, the financial innovation long-run estimation is significant and positive in the CO2 emission models. This result shows that CO2 emission is reduced in China when green finance increases. Therefore, the environmental quality is improved. Green finance is positive and significant in the short run with CO2 emission. The results suggest some important policy implications.