Can enhancing financial inclusivity lower climate risks by inhibiting carbon emissions? Contextual evidence from emerging economies

Climate change has become a global concern. Hence, acknowledging the importance of lowering climate risks by curbing greenhouse gas emissions, this study assesses whether financial inclusion, alongside “energy efficiency improvement, renewable energy use, economic growth, international trade, and urbanization,” mitigate carbon dioxide emissions in 22 emerging economies over the 2008-2018 period. Utilizing econometric methods robust to handling cross-sectionally-dependent, heterogeneous, and endogenous data, results reveal that financial inclusion directly cannot mitigate carbon dioxide emissions. Contrarily, energy efficiency improvement and higher renewable energy share in the aggregate energy consumption level inhibit carbon dioxide emissions. Moreover, energy efficiency gains are observed to impose a moderating effect by reducing carbon emissions jointly with greater financial inclusivity. Furthermore, the results also indicate that economic growth, international trade, and urbanization boost the emission figures. In light of these findings, several carbon dioxide-mitigating policies are recommended for neutralizing climate risks in emerging countries of concern.