Transition toward a sustainable future: Exploring the role of green investment, environmental policy, and financial development in the context of load capacity factor in G‐7 countries

Abstract

AbstractEnvironmental sustainability holds evident significance since it is intricately connected with attaining sustainable development. However, the pre‐requisite of ecological sustainability is the higher ratio of biodiversity to ecological footprint, called the Load Capacity Factor (LCF). Literature is quite scant on the drivers of LCF and the study in hand is the attempt to find the viable policy instruments of this important sustainability indicator. For this purpose, the study has explored the role of green investment (GI), environmental policy (EP), financial development (FD), and natural resources rent (NRR) in the context of the load capacity curve (LCC) hypothesis for G‐7 countries from 1990 to 2019. Considering the co‐dependence among economies, the study has employed a Cross‐sectional Dependence Autoregressive Distributive Lag (CS‐ARDL) technique to investigate the impact of each variable along with other econometric techniques. The observed outcomes suggest that green investment and environmental policy stringency both contribute to improving environmental quality by increasing LCF. Whereas financial development and natural resources rent significantly, reduce the LCF and enhance environmental degradation. Additionally, the findings also validate the LCC hypothesis in the G‐7 context. The study advocates the need for green investment and policy stringency to achieve ecological sustainability and adequate consideration to transform financial development toward sustainability. Finally, the study has presented in‐depth ecological solutions so that G‐7 economies can take possible action to acquire the targets set in COP26.