Does financial development influence the overall natural environment? An environmental performance index (EPI) based insight from the ASEAN countries

The protection of the natural environment is the central concern of the Sustainable Development Goals of the United Nations. Therefore, all countries are struggling to formulate policies for sustainable development. In this context, this study examines the consequences of financial development, and some controlled variables such as economic growth, energy consumption, and urbanization on the overall environmental performance of five developing ASEAN economies, namely Malaysia, Indonesia, Thailand, Vietnam, and the Philippines over the period of 2003-2016. This study employs the Environmental Performance Index (EPI) constructed by Yale University for environmental performance instead of CO2 emissions, a single variable for environmental conditions. This study uses fixed effect, random effect, Newey West, and generalized least square estimators for empirical analysis. The empirical findings divulge that financial development positively affects the environmental performance of these countries. Nonetheless, energy usage and urbanization have a negative relationship with the EPI of these countries Moreover; findings show confirms the validity of the EKC hypothesis in these countries. The study suggests that policymakers of these countries should provide credit for the environment-friendly, energy-efficient, and green projects. Additionally, policies should be designed for sustainable economic development that encourages the use of renewable energy. In addition, renewable energies should be subsidized instead of fossil fuel-based energies.