The impact of sustainable finance development on energy efficiency in emerging economies

One of the best ways for nations to achieve sustainable economic development in the modern era is by accelerating energy transformation and enhancing energy efficiency. Sustainable finance plays a crucial role in bridging economic development and environmental protection. We calculate sustainable finance indexes at the provincial level and at the city level in China, and find that sustainable financial development can promote energy efficiency. These findings remain robust even after employing a series of robustness tests and implementing an instrumental variable approach to address potential endogeneity concerns. Investigations of the underlying mechanism reveal that sustainable finance primarily promote the energy efficiency by promoting technological innovation and optimizing the industrial structure. Moreover, sustainable finance has a particularly significant impact on energy efficiency in cities with non-low-carbon pilot and cities with strict environmental regulations. We further test whether green finance has a threshold effect on energy efficiency. This paper suggests leveraging the positive role of sustainable finance in the energy efficiency of firms, especially by encouraging firms to invest technologies to accelerate their energy efficiency. Furthermore, this paper aim to offer insightful recommendations for accurately formulating and applying sustainable finance development strategies.