Abstract
Abstract Environmental degradation has emerged as a pressing concern in developing nations over recent decades, driven by a complex interplay of structural and socioeconomic forces. South Asian economies, in common with much of the developing world, confront formidable challenges to long-term environmental sustainability. This study empirically examines the nexus between green finance (proxied by investment in renewable energy), renewable energy consumption, and environmental quality across five South Asian economies Pakistan, India, Bangladesh, Nepal, and Sri Lanka over the period 1990–2022. Employing the Pooled Mean Group Autoregressive Distributed Lag (PMG-ARDL) framework, we investigate both long-run equilibrium dynamics and short-run adjustment relationships among the key variables. The empirical results reveal that renewable energy consumption and green finance exert statistically significant negative effects on CO₂ emissions, affirming their efficacy in mitigating environmental degradation. In contrast, population growth and export expansion emerge as significant contributors to environmental deterioration. Robustness checks incorporating alternative control variables including GDP per capita and patent applications as a proxy for technological innovation corroborate the stability and consistency of these findings. The results carry meaningful policy implications, underscoring the pivotal role of green finance and renewable energy adoption in fostering environmental sustainability. Accordingly, governments across the region should actively cultivate green finance ecosystems through dedicated funding mechanisms, including specialized green funds, subsidies for sustainable initiatives, and preferential lending arrangements for environmentally responsible projects. Policymakers are further urged to prioritize the expansion of renewable energy infrastructure by providing targeted incentives for both the production and adoption of clean energy technologies.