“Financing the Climate Transition: Green Finance, Policy Uncertainty, and Corporate Environmental Performance in Emerging Markets”

Background Green finance has emerged as a key mechanism for promoting corporate environmental performance and supporting sustainable development, particularly in emerging economies where environmental challenges and financing gaps remain substantial. However, the effectiveness of green finance may depend on macroeconomic conditions, especially economic policy uncertainty, which can influence firms’ willingness to undertake longterm environmental investments. Methods This study examines the relationship between green finance and corporate environmental performance using a balanced panel dataset of 1,370 listed firms across nine emerging economies from 2014 to 2024 (13,970 firm-year observations). The analysis employs two-way fixed effects panel models, interaction terms, and instrumental variable two-stage least squares (IV–2SLS) estimation to address endogeneity and examine the moderating role of economic policy uncertainty. Results The findings indicate that green finance significantly improves corporate environmental performance, suggesting that access to sustainable financial instruments enables firms to invest in environmentally friendly technologies and practices. However, the positive impact of green finance is weakened under conditions of higher economic policy uncertainty, as firms become more cautious about committing to long- term environmental investments. The results also show that strong institutional quality and higher levels of green technology adoption mitigate the negative effects of policy uncertainty, enabling firms to sustain environmental investments despite uncertain policy environments. Conclusions Overall, the study highlights the importance of stable policy environments, effective institutional governance, and technological innovation in strengthening the environmental benefits of green finance and supporting sustainable climate transitions in emerging markets.