Green horizons: Overcoming political risks with strategic environmental management and financial innovation

The impact of political risk and financial development has been widely studied in the context of sustainable environmental practices. However, their effects on green finance and sustainable finance initiatives have not been thoroughly explored. This paper fills this gap by examining the influence of the political risk financial development index on green finance across 21 OECD economies from 1990 to 2020. Unit root and cointegration tests reveal that variables are stationary at first difference, and there is a long-run cointegration among them. For the primary analysis, we employed the novel MMQR approach, which demonstrates that the financial development index enhances green finance, while the political risk index diminishes it across all quantiles - upper, median, and lower. Robustness analysis using BSQR further confirms these findings. Policies aimed at fostering financial development and reducing political risk should acknowledge the growing significance of green finance in OECD economies.