More Green Finance and Less Climate Vulnerability: Evidence From African Countries

Abstract

In recent years, green finance has emerged as an effective strategy for combating climate change, now recognised as a key objective of the 17 Sustainable Development Goals. In this study, we explore the impact of green finance on climate vulnerability in a sample of 27 African countries. To do so, we use several methods, including fixed effects, Driscoll-Kraay and generalised least squares, which have been robustly tested by Lewbel 2SLS, as well as the method of generalised moments in the system (GMG-S), for the period from 1995 to 2020. Our results indicate that green finance has a negative and significant influence on climate vulnerability, which is true at different levels of development (middle-income countries and low-middle-income countries). Our results show that green finance has the potential to significantly reduce climate vulnerability in African countries. However, to further amplify this impact, it is crucial to take into account the level of development of each country. We therefore recommend the implementation of a well-managed environmental fiscal policy, capable of effectively addressing environmental issues such as flooding, rising temperatures and irregular rainfall. By doing so, we can ensure that these taxes are put to maximum use in tackling environmental problems.