Green and sustainable finance: Assessing the impact of environmental indicators on financial development

There are three basic elements at the interface of green finance: the financial sector, environmental improvement and economic growth. Sustainable finance consists of four basic elements: economic, environmental, social and governance. At this point, although green and sustainable finance focus on similar and different issues, sustainable finance is a much broader discipline that also includes green finance. This study aims to evaluate the impact of countries' environmental elements on financial development. For this purpose, the relationship between the environmental performance and financial development of 155 countries between 2000 and 2021 was tried to be measured with 4 different models. In addition, the study sought a solution to the problem of finding data on green and sustainable finance. Panel regression analysis was performed for all models within the scope of the research. In the analysis process, "Cambridge Sustainable Development Score (FD1)", "IMF Financial Development Index (FD2)", "Green Financial Development Index (FD3)" and "Sustainable Financial Development Index (FD4)" were used as dependent variables. Of these dependent variables, FD3 and FD4 represent green and sustainable financial development calculated by the researcher. As independent variables, "Renewable Energy Production (CG1)" and "Energy Production (CG7)" were used to represent energy production; "Oil Consumption (CG2)" and "Gas Consumption (CG3)" were used to represent energy consumption; "Natural Resource Consumption (CG4)" and "Land Use (CG8)" were used to represent resource use; "Air Pollution (CG5)" and "Water Quality (CG6)" were used to represent environmental damage. In addition, Income Level (KD1), Population (KD2), Urbanization (KD3), Education (KD4) and Technology (KD5) variables were selected as control variables that may have a possible effect on the dependent variable. As a result of the panel regression analysis, it was determined that all models were statistically significant at a 99% confidence interval. In addition, when the research findings are examined as a whole, it has been determined that the most effective elements in the financial development of a country (FD1, FD2, FD3 and FD4) are renewable energy production, gas consumption, natural resource consumption, air pollution, water quality, energy production, land use, urbanization and education. While it can be said that population and technology are also effective in financial development, no statistically significant relationship has been determined between the dependent variables of oil consumption and income level.