Environmental policy stringency, climate change performance, and broad-based financial development under uncertainty: International evidence

The green value of the multidimensional financial development pyramid remains global heterogeneity in prior literature. The heterogeneous contributions of broad-based financial development become more evenly spread if we aim for a comprehensive assessment of the climate change performance index (CCPI) metrics. The study hereby examines the impact of the environmental policy stringency index (EPSI) and the environmental friendliness of broad-based financial development (FD) indexes on climate change performance indicators for OECD-member countries over the past decades. ESPI decreases greenhouse gas emissions and promotes renewable energy consumption and green electricity output. Besides the principal four CCPI categories, the study documents the treatment effects of the Paris Agreement on climate change performance indicators. Under the treatment effects of international climate transition risk, the study documents the green value of FD in promoting green growth for OECD countries. Under the increasing environmental policy stringency, uncertainty plays a necessary leverage to climate change performance metrics. The study validates theoretical notions by a diverse set of panel data estimators, including the regressions on the matched sample. Our study offers comprehensive international evidence on the conditional green value of the multidimensional development of financial institutions and markets to the comprehensive CCPI frameworks. Our empirical findings are tested through times of world uncertainties that are critical to policy implementations toward inclusive growth and sustainable development goals. • Environmental policy effects on climate performance metrics are presented. • Aggregate financial development presents a green value across uncertainties. • Renewable energy consumption and electricity output drive the green transition. • The Paris Agreement imposes treatment effects on climate performance indicators. • Financial development contributes to the green transition under global risks.