Is the load capacity curve a true phenomenon for OECD economies? Hidden behavior of financial institutions and markets in Environmental Sustainability

Over the last few decades, the globe has faced severe challenges in isolating entire nations from social, economic, and environmental issues. However, rising pollution levels have become the most debatable agenda. To resolve this, the world has introduced a few green initiatives, i.e., the Paris Agreement, the Kyoto Protocol and the Sustainable Development Goals (SDGs). Interestingly, to meet the desired threshold level, all stockholders demand massive finance to comply with such green initiatives. Thus, to highlight the importance of the financial sector, this study considers 26 OECD economies covering the period of 1982–2018. The leading importance of this study is utilizing the load capacity factor (LCF) as a decent proxy for sustainability. Similarly, the present empirical study utilizes advanced estimators to investigate the role of financial market index (FMI), financial institutions index (FII), renewable energy (REC) and income in environmental quality. The summarized results describe the positive role of REC in LCF in the specified nations. Conversely, FMI and FII are inverse-connected with the load capacity curve. Finally, the Load Capacity Curve (LCC) is validated for the selected economies. Interestingly, this study also suggests some imperative implications for boosting environmental sustainability. Such outcomes highlight the urgent need for legislative frameworks to accelerate the switch to renewable energy sources. Additionally, they emphasize the need for stricter oversight and control of financial institutions regarding their investments and policies for environmental preservation. Finally, the study raises the possibility that financial markets might obstruct ecological safeguards. [Display omitted] •This study introduces the valid environmental instrument for OECD economies.•The LCC hypothesis is validated for the OECD economies.•Financial markets & institutions are negatively associated with LCF.•Renewable energy performs well in supporting the LCF theme.•Green implications are suggested to reach a certain environmental level.