The Nexus among Green Financing: Companies in G20 Emerging Market Countries

Nur Imamah; Irwan Trinugroho; Layyin Nafisa Arifin; Luki Okta Fahri

doi:10.15408/etk.v24i2.45322

Authors

Nur Imamah Department of Administrative Science, Universitas Brawijaya https://orcid.org/0009-0004-5811-4841
Irwan Trinugroho Center for Fintech and Banking, Universitas Sebelas Maret
Layyin Nafisa Arifin Department of Administrative Science, Universitas Brawijaya
Luki Okta Fahri Universitas Brawijaya

DOI:

https://doi.org/10.15408/etk.v24i2.45322

Keywords:

green investment, green finance, profitability, productivity, emerging countries

Abstract

Research Originality: This study addresses this urgent research gap by examining not only these relationships but also the underexplored role of national R&D capacity as a moderating factor, highlighting how emerging economies' innovation limitations may dilute the benefits of green capital inflows.

Research Objectives: This study analyzed the impact of green financing and FDI on firm profitability and productivity in G20 emerging markets, and assess how R&D expenditure moderates these effects.

Research Method: Panel data from 57 multinational companies across ten G20 emerging market countries during 2016–2021 were analyzed using fixed-effect regression.

Empirical Results: Green financing and FDI both show significant positive impacts on firm profitability and productivity. However, R&D negatively moderates the green finance–profitability link and has no significant moderating effect on productivity or the FDI relationship, suggesting structural inefficiencies in R&D systems within emerging economies.

Implications: The findings call for urgent policy interventions to enhance R&D infrastructure and efficiency in G20 emerging markets. Redirecting subsidies from fossil fuels to green innovation, fostering public-private R&D collaboration, and strengthening institutional frameworks can help unlock the full potential of green finance and FDI in supporting a sustainable economic transformation.

JEL Classification: Q5, G3, F2

Downloads

Download data is not yet available.

References

Adams, M., Wheeler, D., & Woolston, G. (2011). A Participatory Approach to Sustainable Energy Strategy Development in a Carbon-Intensive Jurisdiction: The Case of Nova Scotia. Energy Policy, 39(5), 2550–2559. https://doi.org/10.1016/j.enpol.2011.02.022.

Adams-Kane, J., & Lopez, C. (2019). Global Opportunity Index 2018: Emerging G20 Countries and Capital Flow Reversal. Retrieved from: SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3356867.

Akinroluyo, B. I. (2022). Capital Adequacy and Deposit Money Bank's Return on Asset (ROA) in Nigeria. Finance & Accounting Research Journal, 4(1), 1–13. https://doi.org/10.51594/farj.v4i1.284.

Aldakhil, A. M., Nassani, A. A., Awan, U., Abro, M. M. Q., & Zaman, K. (2018). Determinants of Green Logistics in BRICS Countries: An Integrated Supply Chain Model for Green Business. Journal of Cleaner Production, 195, 861–868. https://doi.org/10.1016/j.jclepro.2018.05.248.

Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and Economic Growth: The Role of Local Financial Markets. Journal of International Economics, 64(1), 89–112. https://doi.org/10.1016/S0022-1996(03)00081-3.

Ali, S., Yusop, Z., Kaliappan, S. R., & Chin, L. (2020). Dynamic Common Correlated Effects of Trade Openness, FDI, And Institutional Performance on Environmental Quality: Evidence from OIC Countries. Environmental Science and Pollution Research, 27(11), 11671–11682. https://doi.org/10.1007/s11356-020-07768-7.

Al-Qudah, A. A., Hamdan, A., Al-Okaily, M., & Alhaddad, L. (2022). The Impact of Green Lending on Credit Risk: Evidence From UAE's Banks. Environmental Science and Pollution Research, 29, 11889–11901. https://doi.org/10.1007/s11356-021-18224-5.

Amores-Salvadó, J., Martín-de Castro, G., & Navas-López, J. E. (2014). Green Corporate Image: Moderating The Connection Between Environmental Product Innovation and Firm Performance. Journal of Cleaner Production, 83, 356–365. https://doi.org/10.1016/j.jclepro.2014.07.059.

Anser, M. K., Yousaf, Z., Zaman, K., Nassani, A. A., Alotaibi, S. M., Jambari, H., Khan, A., & Kabbani, A. (2020). Determination of Resource Curse Hypothesis in Mediation of Financial Development and Clean Energy Sources: Go-For-Green Resource Policies. Resources Policy, 66, 101640. https://doi.org/10.1016/j.resourpol.2020.101640.

Arawomo, O., & Apanisile, J. F. (2018). Determinants of Foreign Direct Investment in the Nigerian Telecommunication Sector. Modern Economy, 9(05), 907–923. https://doi.org/10.4236/me.2018.95058.

Baloch, M. A., Ozturk, I., Bekun, F. V., & Khan, D. (2021). Modeling The Dynamic Linkage Between Financial Development, Energy Innovation, And Environmental Quality: Does Globalization Matter? Business Strategy and the Environment, 30(1), 176–184. https://doi.org/10.1002/bse.2615.

Bhattacharyya, R. (2022). Green Finance For Energy Transition, Climate Action and Sustainable Development: Overview of Concepts, Applications, Implementation and Challenges. Green Finance, 4(1), 1–35. https://doi.org/10.3934/GF.2022001.

Black, R., Cullen, K., Fay, B., Hale, T., Lang, J., Mahmood, S., & Smith, S. M. (2021). Taking stock: A global assessment of net zero targets. Energy & Climate Intelligence Unit and Oxford Net Zero.

Boye, J. I., & Arcand, Y. (2013). Current Trends in Green Technologies in Food Production and Processing. Food Engineering Reviews, 5(1), 1–17. https://doi.org/10.1007/s12393-012-9062-z.

Chen, M., Sinha, A., Hu, K., & Shah, M. I. (2021). Impact of Technological Innovation on Energy Efficiency In Industry 4.0 Era: Moderation of Shadow Economy in Sustainable Development. Technological Forecasting and Social Change, 164, 120521. https://doi.org/10.1016/j.techfore.2020.120521.

Choudhury, P., & Khanna, T. (2014). Toward Resource Independence–Why State-Owned Entities Become Multinationals: An Empirical Study of India's Public R&D Laboratories. Journal of International Business Studies, 45, 943-960. https://doi.org/10.1057/jibs.2014.20.

Climate Transparency Report. (2022). G20 Response to The Energy Crisis: Critical for 1.5°C. retrieved from: www.climate-transparency.org

Cui, L., & Xu, Y. (2019). Outward FDI and Profitability of Emerging Economy Firms: Diversifying From Home Resource Dependence in Early-Stage Internationalization. Journal of World Business, 54(4), 372–386. https://doi.org/10.1016/j.jwb.2019.04.002.

Delios, A., & Beamish, P. W. (2001). Survival and Profitability: The Roles of Experience and Intangible Assets in Foreign Subsidiary Performance. Academy of Management Journal, 44(5), 1028–1038. https://doi.org/10.2307/3069446.

Doh, J. P., Teegen, H., & Mudambi, R. (2004). Balancing Private and State Ownership in Emerging Markets' Telecommunications Infrastructure: Country, Industry, and Firm Influences. Journal of International Business Studies, 35(3), 233–250. https://doi.org/10.1057/palgrave.jibs.8400082.

D'Orazio, P. (2022). Mapping The Emergence and Diffusion of Climate-Related Financial Policies: Evidence From a Cluster Analysis on G20 Countries. International Economics, 169, 135–147. https://doi.org/10.1016/j.inteco.2021.11.005.

Dunning, J. H. (1992). Multinational Enterprises and The Global Economy. New Jersey: Addison-Wesley.

Fahri, L. O., Imamah, N., & Darmawan, A. (2022). Financial Integration, Technology Transfer, Labor Productivity Growth and Economic Growth on Pre-And-During COVID-19 Crisis: Evidence From G20 Countries. Jurnal Keuangan Dan Perbankan, 26(3), 615–637. https://doi.org/10.26905/jkdp.v26i3.7923.

Fujii, H., & Managi, S. (2019). Decomposition Analysis of Sustainable Green Technology Inventions in China. Technological Forecasting and Social Change, 139, 10–16. https://doi.org/10.1016/j.techfore.2018.11.013.

Füssel, H.-M., & Klein, R. J. T. (2006). Climate Change Vulnerability Assessments: An Evolution of Conceptual Thinking. Climatic Change, 75(3), 301–329. https://doi.org/10.1007/s10584-006-0329-3.

Ganda, F. (2019). The Environmental Impacts of Financial Development in OECD Countries: A Panel GMM Approach. Environmental Science and Pollution Research, 26(7), 6758–6772. https://doi.org/10.1007/s11356-019-04143-z.

Gelos, R. G., & Roldos, J. (2004). Consolidation and Market Structure in Emerging Market Banking Systems. Emerging Markets Review, 5(1), 39–59. https://doi.org/10.1016/j.ememar.2003.12.002.

Gorodnichenko, Y., Svejnar, J., & Terrell, K. (2020). Do Foreign Investment and Trade Spur Innovation? European Economic Review, 121, 103343. https://doi.org/10.1016/j.euroecorev.2019.103343.

Hafner, S., Jones, A., Anger-Kraavi, A., & Pohl, J. (2020). Closing The Green Finance Gap–A Systems Perspective. Environmental Innovation and Societal Transitions, 34, 26–60. https://doi.org/10.1016/j.eist.2019.11.007.

Han, W., Wang, J., & Wang, X. (2022). FDI and Firm Productivity in Host Countries: The Role of Financial Constraints. Journal of International Money and Finance, 124, 102623. https://doi.org/10.1016/j.jimonfin.2022.102623.

Hepburn, C., O'Callaghan, B., Stern, N., Stiglitz, J., & Zenghelis, D. (2020). Will COVID-19 Fiscal Recovery Packages Accelerate or Retard Progress on Climate Change? Oxford Review of Economic Policy, 36(Supplement_1), S359–S381. https://doi.org/10.1093/oxrep/graa015.

Holzner, B., & Wagner, M. (2022). Linking Levels of Green Innovation With Profitability Under Environmental Uncertainty: An Empirical Study. Journal of Cleaner Production, 378, 134438. https://doi.org/10.1016/j.jclepro.2022.134438.

Hu, J., Wang, Z., Lian, Y., & Huang, Q. (2018). Environmental Regulation, Foreign Direct Investment and Green Technological Progress—Evidence from Chinese Manufacturing Industries. International Journal of Environmental Research and Public Health, 15(2), 221. https://doi.org/10.3390/ijerph15020221.

Hu, Khan, S. M., Huang, S., Abbas, J., Matei, M. C., & Badulescu, D. (2022). Employees' green enterprise motivation and green creative process engagement and their impact on green creative performance. International Journal of Environmental Research and Public Health, 19(10), 5983. https://doi.org/10.3390/ijerph19105983

Intergovernmental Panel on Climate Change. (2014). Climate Change 2014: Synthesis Report: Longer Report. Intergovernmental Panel on Climate Change.

Jiakui, C., Abbas, J., Najam, H., Liu, J., & Abbas, J. (2022). Green Technological Innovation, Green Finance, And Financial Development and Their Role in Green Total Factor Productivity: Empirical Insights from China. Journal of Cleaner Production, 378, 135131. https://doi.org/10.1016/j.jclepro.2022.135131.

Kong, D., Zhu, L., & Yang, Z. (2020). Effects of Foreign Investors on Energy Firms' Innovation: Evidence from a Natural Experiment in China. Energy Economics, 92, 105011. https://doi.org/10.1016/j.eneco.2020.105011.

Kudratova, S., Huang, X., & Zhou, X. (2018). Sustainable Project Selection: Optimal Project Selection Considering Sustainability Under Reinvestment Strategy. Journal of Cleaner Production, 203, 469–481. https://doi.org/10.1016/j.jclepro.2018.08.259.

Kumar, N. (2002). Globalization and The Quality of Foreign Direct Investment. Oxford: Oxford University Press.

Kuramochi, T., Nascimento, L., Moisio, M., den Elzen, M., Forsell, N., van Soest, H., Tanguy, P., Gonzales, S., Hans, F., & Jeffery, M. L. (2021). Greenhouse Gas Emission Scenarios in Nine Key Non-G20 Countries: An Assessment of Progress Toward 2030 Climate Targets. Environmental Science & Policy, 123, 67–81. https://doi.org/10.1016/j.envsci.2021.04.015

Latif, B., Ong, T. S., Meero, A., Abdul Rahman, A. A., & Ali, M. (2022). Employee-Perceived Corporate Social Responsibility (CSR) And Employee Pro-Environmental Behavior (PEB): The Moderating Role of CSR Skepticism and CSR Authenticity. Sustainability, 14(3), 1380. https://doi.org/10.3390/su14031380.

Lee, C. C., & Lee, C. C. (2022). How Does Green Finance Affect Green Total Factor Productivity? Evidence From China. Energy Economics, 107, 105863. https://doi.org/10.1016/j.eneco.2022.105863.

Liu, X., Zhang, W., Liu, X., & Li, H. (2022). The Impact Assessment of FDI On Industrial Green Competitiveness in China: Based on The Perspective of FDI Heterogeneity. Environmental Impact Assessment Review, 93, 106720. https://doi.org/10.1016/j.eiar.2021.106720.

Nawaz, M. A., Seshadri, U., Kumar, P., Aqdas, R., Patwary, A. K., & Riaz, M. (2021). Nexus Between Green Finance and Climate Change Mitigation In N-11 and BRICS Countries: Empirical Estimation Through Difference in Differences (DID) Approach. Environmental Science and Pollution Research, 28(6), 6504–6519. https://doi.org/10.1007/s11356-020-10920-y.

Ng, T. H., & Tao, J. Y. (2016). Bond Financing for Renewable Energy in Asia. Energy Policy, 95, 509–517. https://doi.org/10.1016/j.enpol.2016.03.015.

Pan, C., Abbas, J., Álvarez-Otero, S., Khan, H., & Cai, C. (2022). Interplay Between Corporate Social Responsibility and Organizational Green Culture and Their Role in Employees' Responsible Behavior Towards the Environment and Society. Journal of Cleaner Production, 366, 132878. https://doi.org/10.1016/j.jclepro.2022.132878.

Park, Y., Meng, F., & Baloch, M. A. (2018). The Effect of ICT, Financial Development, Growth, and Trade Openness on CO2 Emissions: An Empirical Analysis. Environmental Science and Pollution Research, 25(30), 30708–30719. https://doi.org/10.1007/s11356-018-3108-6.

Prieur, F., & Bréchet, T. (2013). Can Education Be Good for Both Growth and The Environment? Macroeconomic Dynamics, 17(5), 1135–1157. https://doi.org/10.1017/S1365100512000132.

Qamruzzaman, M., & Jianguo, W. (2020). The Asymmetric Relationship Between Financial Development, Trade Openness, Foreign Capital Flows, and Renewable Energy Consumption: Fresh Evidence from Panel NARDL Investigation. Renewable Energy, 159, 827–842. https://doi.org/10.1016/j.renene.2020.06.069.

Rehman Khan, S. A., Yu, Z., Sarwat, S., Godil, D. I., Amin, S., & Shujaat, S. (2022). The Role of Block Chain Technology in Circular Economy Practices to Improve Organisational Performance. International Journal of Logistics Research and Applications, 25(4–5), 605–622. https://doi.org/10.1080/13675567.2021.1872512.

Romano, A. A., Scandurra, G., Carfora, A., & Fodor, M. (2017). Renewable Investments: The Impact of Green Policies in Developing and Developed Countries. Renewable and Sustainable Energy Reviews, 68, 738–747. https://doi.org/10.1016/j.rser.2016.10.024.

Shahbaz, M., & Sinha, A. (2019). Environmental Kuznets Curve for CO2 Emissions: A Literature Survey. Journal of Economic Studies, 46(1), 106-168. https://doi.org/10.1108/JES-09-2017-0249.

Shaktawat, A., & Vadhera, S. (2021). Sustainability Assessment of Renewable Energy Technologies in Context to India Using Multicriteria Analysis with and Without Incorporating Risk Analysis. Journal of Environmental Assessment Policy and Management, 23(03n04), 2250020. https://doi.org/10.1142/S146433322250020X.

Shu, C., Zhou, K. Z., Xiao, Y., & Gao, S. (2016). How Green Management Influences Product Innovation in China: The Role of Institutional Benefits. Journal of Business Ethics, 133(3), 471–485. https://doi.org/10.1007/s10551-014-2401-7.

Spash, C. L. (2020). A tale of three paradigms: Realising the Revolutionary Potential of Ecological Economics. Ecological Economics, 169, 106518. https://doi.org/10.1016/j.ecolecon.2019.106518.

Sun, H., Edziah, B. K., Sun, C., & Kporsu, A. K. (2019). Institutional quality, green innovation and energy efficiency. Energy Policy, 135, 111002. https://doi.org/10.1016/j.enpol.2019.111002.

Tang, D. Y., & Zhang, Y. (2020). Do Shareholders Benefit from Green Bonds? Journal of Corporate Finance, 61, 101427. https://doi.org/10.1016/j.jcorpfin.2018.12.001.

Tong, L., Jabbour, C. J. C., Najam, H., & Abbas, J. (2022). Role of Environmental Regulations, Green Finance, And Investment in Green Technologies in Green Total Factor Productivity: Empirical Evidence from Asian Region. Journal of Cleaner Production, 367, 134930. https://doi.org/10.1016/j.jclepro.2022.134930

Wang, X., Han, L., & Huang, X. (2020). Bank Competition, Concentration and EU SME Cost of Debt. International Review of Financial Analysis, 71, 101534. https://doi.org/10.1016/j.irfa.2020.101534.

Wang, X., Sun, C., Wang, S., Zhang, Z., & Zou, W. (2018). Going Green or Going Away? A Spatial Empirical Examination of The Relationship Between Environmental Regulations, Biased Technological Progress, and Green Total Factor Productivity. International Journal of Environmental Research and Public Health, 15(9), 1917. https://doi.org/10.3390/ijerph15091917.

Wen, J., Farooq, U., Tabash, M. I., el Refae, G. A., Ahmed, J., & Subhani, B. H. (2021). Government Green Environmental Concerns and Corporate Real Investment Decisions: Does Financial Sector Development Matter? Energy Policy, 158, 112585. https://doi.org/10.1016/j.enpol.2021.112585.

Werner, R. A. (2014). Can Banks Individually Create Money Out of Nothing? the Theories and The Empirical Evidence. International Review of Financial Analysis, 36, 1–19. https://doi.org/10.1016/j.irfa.2014.07.015.

Wu, H. (2022). Trade Openness, Green Finance and Natural Resources: A Literature Review. Resources Policy, 78, 102801. https://doi.org/10.1016/j.resourpol.2022.102801.

Xing, C., Zhang, Y., & Wang, Y. (2020). Do Banks Value Green Management in China? The Perspective of The Green Credit Policy. Finance Research Letters, 35, 101601. https://doi.org/10.1016/j.frl.2020.101601.

Xu, J., Akhtar, M., Haris, M., Muhammad, S., Abban, O. J., & Taghizadeh-Hesary, F. (2022). Energy Crisis, Firm Profitability, and Productivity: An Emerging Economy Perspective. Energy Strategy Reviews, 41, 100849. https://doi.org/10.1016/j.esr.2022.100849.

Xu, Y., Li, S., Zhou, X., Shahzad, U., & Zhao, X. (2022). How Environmental Regulations Affect the Development of Green Finance: Recent Evidence from Polluting Firms in China. Renewable Energy, 189, 917–926. https://doi.org/10.1016/j.renene.2022.03.020.

Yamaguchi, Y., & Yamaguchi, K. (2022). The Endogenous Money IS-LM Model of The Debt Money System (Part I). International Journal of Economic Theory, 18(2), 155-183.

Yasmeen, H., Wang, Y., Zameer, H., & Solangi, Y. A. (2020). Decomposing Factors Affecting CO2 Emissions in Pakistan: Insights from LMDI Decomposition Approach. Environmental Science and Pollution Research, 27(3), 3113–3123. https://doi.org/10.1007/s11356-019-07187-3.

Yu, C.-H., Wu, X., Zhang, D., Chen, S., & Zhao, J. (2021). Demand for Green Finance: Resolving Financing Constraints on Green Innovation in China. Energy Policy, 153, 112255. https://doi.org/10.1016/j.enpol.2021.112255.

Zhang, Cherian, J., Abbas Sandhu, Y., Abbas, J., Cismas, L. M., Negrut, C. V., & Negrut, L. (2022). Presumption of Green Electronic Appliances Purchase Intention: The Mediating Role of Personal Moral Norms. Sustainability, 14(8), 4572. https://doi.org/10.3390/su14084572.

Zhang, D. (2021). Green Credit Regulation, Induced R&D and Green Productivity: Revisiting the Porter Hypothesis. International Review of Financial Analysis, 75, 101723. https://doi.org/10.1016/j.irfa.2021.101723.

Zhao, Cao, Y., Feng, C., Guo, K., & Zhang, J. (2022). How Do Heterogeneous R&D Investments Affect China's Green Productivity: Revisiting the Porter Hypothesis. Science of the Total Environment, 825, 154090. https://doi.org/10.1016/j.scitotenv.2022.154090.

Zhao, L., Gu, J., Abbas, J., Kirikkaleli, D., & Yue, X.-G. (2022). Does Quality Management System Help Organizations in Achieving Environmental Innovation and Sustainability Goals? A Structural Analysis. Economic Research-Ekonomska Istraživanja, 35(1), 5932-5955. https://doi.org/10.1080/1331677X.2022.2100436.

Zhong, J., & Li, T. (2020). Impact of Financial Development and Its Spatial Spillover Effect on Green Total Factor Productivity: Evidence From 30 Provinces in China. Mathematical Problems in Engineering, 2020, 1593742. https://doi.org/10.1155/2020/5741387.

Zhu, Y. (2010). An Analysis on Technology Spillover Effect of Foreign Direct Investment and Its Countermeasures. International Journal of Business and Management, 5(4), 178–182. https://doi.org/10.5539/ijbm.v5n4p178.