Does Income Inequality Matter in Nexus of Green Finance and Environmental Quality? An SEM Analysis Approach

Abstract

This study used the Structural Equation Modeling approach to investigate the relationships among Green Finance, Renewable Energy Consumption, Ecological Footprint, and Income Inequality. Data from the years 2001 to 2022 of a total of 126 countries globally were analyzed using Structural Equation Modeling approach. The objective was to examine the impact of Green Finance on Ecological directly and through mediation of Income Inequality indirectly. This study’s results demonstrate crucial links that exist between sustainable finance, environmental sustainability, and socioeconomic inequalities. These results point towards the importance of socioeconomic development for these factors. Moreover, Green Finance exhibited potential for alleviating the Ecological Footprint syndrome, and Renewable Energy induced differential effects on ecological degradation as well as Income Inequality. Economic Development and Urbanization as control variables have significant and insignificant positive effect respectively on Ecological Footprint. The policy recommendations as proposed covered a range of strategies for dealing with environmental and social issues. This will involve promoting green finance ventures, enabling renewable energy infrastructure expenditures and investments, supporting sustainable urbanization measures, as well as enhancing public awareness of the interdependence between environmental and social factors. Incorporating these suggestions into policy frameworks would mean stakeholders could contribute towards achieving harmony in terms of environmental sustainability and socioeconomic equity.