Green energy transition, economic complexity, green finance, and ecological footprint: Shaping the SDGs in the presence of geopolitical risk

Abstract

Achieving sustainable development while mitigating environmental degradation is a pressing global challenge. Economic development, accompanied by industrialization, fossil fuel consumption, and unsustainable use of natural resources, is widely identified in the literature as a leading cause of environmental degradation. Green energy transition (GET) and economic complexity—the shift towards more advanced and knowledge‐driven manufacturing, can be crucial strategies in reducing ecological degradation and helping countries achieve climate change mitigation targets. Green finance can play an important role in environmental sustainability, while geopolitical risk can impede countries' climate mitigation efforts. In this context, this study investigates the impact of GET, economic complexity, green finance, and geopolitical risk on the ecological footprint in OECD countries from 1995 to 2021. These four critical factors are integrated into the same environmental policy framework due to their potential to influence environmental sustainability in OECD economies. The study employed the Method of Moments Quantile Regression to provide robust estimates across different quantiles. The empirical outcomes unveiled that GET significantly reduces the ecological footprint across all quantiles. The economic complexity posed a significant and negative impact across all quantiles except at the lower quantile (τ = 0.10). Green finance also poses a negative impact, indicating its effectiveness in promoting environmental sustainability. However, geopolitical risk exacerbates the ecological footprint. The control variables, GDP and urbanization, are found to increase the ecological footprint. In terms of policy implications, this study suggests that policymakers should focus on increasing the share of green energy, fostering economic complexity and green finance, and mitigating geopolitical tensions to reduce the ecological footprint and achieve environmental sustainability in OECD nations.