Does Climate Finance Accelerate Progress Toward SDG 7? Evidence From Low‐and Middle‐Income Countries

Achieving SDG 7 requires substantial financial flows that can enable low‐ and middle‐income countries (LMICs) to expand renewable energy and reduce dependence on carbon‐intensive systems. This study evaluates whether climate finance—specifically adaptation funding, mitigation funding, and total climate‐related financial flows—effectively drives renewable energy transitions in LMICs from 2002 to 2022. Using the Method of Moments Quantile Regression (MMQR) combined with Driscoll–Kraay standard errors and System GMM estimation to address robustness and potential endogeneity concerns, the findings reveal that climate finance significantly enhances renewable energy adoption, with the strongest effects observed at the median and higher quantiles. This suggests that climate finance is most impactful in countries that already possess moderate to strong absorptive capacity and institutional readiness. The findings further reveal that the impact of climate finance is conditional on economic development, as interaction and subsample analyses show stronger effects in countries with higher absorptive capacity. Among the control variables, GDP per capita and population scale consistently promote renewable energy growth, while inflation acts as a barrier by increasing investment uncertainty. Natural resource rents remain insignificant, indicating that resource‐rich economies often fail to channel extractive revenues toward sustainable energy pathways. Overall, the results confirm that climate finance is a crucial catalyst for advancing SDG 7 in LMICs, but its effectiveness depends on stable macroeconomic conditions, institutional reforms, and policies that ensure equitable and inclusive access to clean energy.