Background Green finance has emerged as an important mechanism for mobilizing private capital toward climate mitigation and sustainable development. Despite the rapid expansion of sustainable finance markets, limited empirical evidence exists on how macroeconomic conditions, particularly economic policy uncertainty (EPU), influence the effectiveness of green finance in improving corporate environmental performance (CEP) in developed economies. Methods This study examines the relationship between green finance, policy uncertainty, and corporate environmental performance using panel data from 1,280 listed non financial firms across nine developed economies during 2012 2024. The analysis applies a multi-stage econometric framework including two-way fixed-effects, instrumental variable two-stage least squares (IV-2SLS), and propensity score matching difference-in-differences (PSM-DiD) to address endogeneity, selection bias, and unobserved heterogeneity. Results The findings indicate that green finance significantly improves corporate environmental performance, as access to sustainable financial instruments enables firms to invest in renewable energy, energy efficiency, and lowcarbon technologies. However, the positive impact of green finance weakens under high economic policy uncertainty, consistent with real options theory, which suggests firms delay irreversible sustainability investments in unstable policy environments. The results also show that institutional governance mechanisms, including climate disclosures under the Task Force on Climate-related Financial Disclosures (TCFD), the Corporate Sustainability Reporting Directive (CSRD), and corporate commitments to the Science-Based Targets initiative (SBTi), mitigate the negative effects of policy uncertainty. Conclusions Overall, the study highlights that the effectiveness of green finance depends on stable climate policies, transparent disclosure systems, and strong institutional governance, which are essential for advancing global climate objectives and achieving Sustainable Development Goal 13 (Climate Action).
perera et al. (Tue,) studied this question.