Effect of climate finance on environmental quality: A global analysis

Climate finance is an increasingly sought-after instrument for reducing greenhouse gas emissions by financing adaptation and mitigation measures. There is a global commitment to achieve the Sustainable Development Goals (SDGs), particularly with regard to tackling climate change. The mobilization and use of climate finance could influence environmental quality. This paper focuses on analyzing the impact of climate finance on environmental quality in 111 countries worldwide over the period 2000-2019. This study uses the generalized method of moments (GMM) in panel data. The main results indicate a positive effect of climate finance on environmental quality, reflecting the theory of financial ecology. More specifically, climate finance targeting climate change mitigation measures has a significant effect on environmental quality. Member countries of the United Nations Framework Convention on Climate Change (UNFCCC) and private sector actors should implement strategies to monetize climate finance and invest heavily in mitigation and adaptation measures to improve environmental quality.