Do green finance and innovation matter for environmental protection? A case of OECD economies

As climate change has become an increasingly pressing threat, the active advent of green innovation and reducing environmental pollution have also become the driving forces for cleaner economic growth, and a healthier environment. In this regard, numerous research studies have identified all the different aspects that affect environmental pollution. However though, research studies have overlooked green finance initiatives and innovations' impact on trade-adjusted CO2 emissions. Therefore, this study emphasizes upon the significance of green finance, and green innovation in achieving sustainable development. This research study fills the gap by studying the effect of green finance on trade-adjusted CO2 emissions, particularly in the presence of green innovation, environmental policy stringency, international trade, and economic growth for OECD countries. In this context, the cointegration analysis demonstrates that green finance, green innovation, environmental policy stringency, GDP, exports, imports, and carbon emissions have a long-run association with one another. The results of the method of movement quantile regression (MMQR) analysis show that green finance significantly reduces carbon emissions in OECD countries. Similarly, the results for green innovation also show a significantly negative relationship with trade-adjusted CO2 emission. The findings reveal that green finance and the innovations' magnitude of impact on carbon emission is higher, specifically at the higher quantiles. Moreover, economic growth and imports tend to have a positive impact on carbon emissions, whereas exports and environmental policy stringency decrease carbon emissions and boost environmental quality. Policymakers and regulators should therefore focus on green finance and green innovation, in order to mitigate trade-adjusted CO2 emissions and attain the sustainable environmental goals set by OECD countries. •This study examines trade-adjusted CO2 emissions with green finance and innovation.•The study applied advanced econometrics approaches for analysis.•Green financing and innovation significantly reduce CCO2 emissions.•Green financing and innovation affect CCO2 emissions more at higher quantiles.•Growth degrades the environment, while environmental policy stringency improves it.