Testing the role of digital financial inclusion in energy transition and diversification towards COP26 targets and sustainable development goals

Abstract

This study investigates the impact of digital financial inclusion, energy transition, and diversification on achieving the United Nations Sustainable Development Goals (SDGs) and Climate Change Conference (COP26) targets in the context of emerging seven economies (E-7). The SDGs include objectives related to sustainable energy consumption, the availability of sustainable energy, economic growth, sustainable development through technology, and climate change actions. This research employs novel econometric panel quantile regression and ordinary least square methods for benchmark estimations and pooled mean group for causality analysis. The empirical results indicate that energy transition and diversification, technological innovation, and foreign direct investment negatively correlate with CO2 emissions across all quantiles. Conversely, digital finance inclusion, energy consumption, and economic growth are the primary contributors to the environmental deterioration in the E-7 region. The PMG causality findings demonstrate a feedback effect for the indicators. Furthermore, our results are robust to alternative measures by Augmented Mean Group (AMG) and Common Correlated Effect Mean Group (CCEMG), which may assist policymakers in developing long- and short-term environmental protection initiatives. Based on the outcomes, we suggest that strategies to reduce carbon emissions and achieve the SDGs and COP26 targets should prioritize sustainable energy, and policymakers should enhance incentives for inclusive green funding. The findings recommend a comprehensive policy framework through which E-7 states may proceed toward reaching the SDGs (7-8-9-11-12 and 13) and COP26 commitments.