Shaping the green future: How energy transition and eco-innovation can influence the financial development-ecological footprint nexus in EU countries
Gondwana Research, vol.153, pp.291-304, 2026 (SCI-Expanded, Scopus)
- Publication Type: Article / Article
- Volume: 153
- Publication Date: 2026
- Doi Number: 10.1016/j.gr.2025.12.005
- Journal Name: Gondwana Research
- Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus, Geobase
- Page Numbers: pp.291-304
- Keywords: Eco-innovation, Energy transition, Environmental quality, Financial development, Machine learning
- Azerbaijan State University of Economics (UNEC) Affiliated: Yes
Abstract
The financial sector stands at a critical crossroads in the 21st century, wielding immense power to shape our world's economic landscape and environmental future. The role of finance in climate change is increasingly scrutinized as the world grapples with environmental degradation. Once a cornerstone of economic growth, financial development faces a paradox: how can it drive prosperity while enhancing environmental quality? While previous research has extensively explored the economic implications of financial development, its potential to improve environmental quality through mechanisms like energy transition and eco-innovation remains relatively unexplored. This study explores the interplay between financial development, energy transition, and eco-innovation in shaping the environmental quality in EU nations. Advanced econometric techniques, including the panel quantile regression and Artificial Neural Network (ANN) methods, are utilized to achieve this objective. The results reveal that while financial development significantly increases the ecological footprint, energy transition and eco-innovation contribute to its reduction. Interestingly, the interaction between financial development and energy transition negatively impacts the ecological footprint, suggesting that financial development can indirectly improve environmental quality when aligned with energy transition efforts. Similarly, the interaction between financial development and eco-innovation exhibits a negative effect, although its significance varies across different quantiles. The results remain consistent after the robustness check. These findings have important implications for EU policymakers seeking to achieve sustainable development goals, particularly in balancing financial sector growth with environmental protection. The study suggests implementing differential regulatory frameworks for financial institutions. Specifically, it proposes imposing stricter credit regulations on environmentally polluting industries while creating more favorable lending conditions for sustainable energy investments and eco-innovative enterprises. These policies will likely align financial sector development with sustainable development.