Driving policy change: Green finance, R&D, and renewable energy as catalysts for environmental stringency in the G7

Climate change underscores the urgent need for stringent environmental regulations, yet the determinants of policy stringency remain insufficiently explored. This study investigates how green finance (GF), research and development (R&D), and renewable energy consumption (RECN) drive the Environmental Policy Stringency Index (EPSI) across G7 economies from 1990 to 2022. Grounded in sustainable finance and institutional theories, the analysis employs the Method of Moments Quantile Regression (MMQR) to capture distributional heterogeneity, complemented by Bootstrap Quantile Regression (BSQR) and Dumitrescu–Hurlin panel causality tests for robustness. The results demonstrate that green finance consistently enhances environmental policy stringency, while R&D and renewable energy adoption reinforce policy effectiveness by fostering innovation and clean transitions. Conversely, GDP growth and consumption-based CO2 emissions exert a weakening effect, reflecting persistent growth–environment trade-offs. Policy implications emphasize scaling transparent and verifiable green finance instruments and incentivizing renewable technologies in the short term, while institutionalizing sustainable finance frameworks and strengthening innovation systems in the long term. The findings highlight green finance as a pivotal catalyst for aligning economic progress with environmental governance and climate objectives.