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Financial Pathways to Sustainability—The Effects of Financial Inclusion, Development, and Innovation on Shaping ESG Readiness in Low- and Middle-Income Countries

Author

Listed:
  • Yongsheng Guo

    (International Business School, Teesside University, Middlesbrough TS1 3BA, UK)

  • Mirza Muhammad Naseer

    (International Business School, Teesside University, Middlesbrough TS1 3BA, UK)

Abstract

This study investigates the impacts of financial inclusion, development, and technological innovation on ESG readiness across low-income, lower-middle-income, and upper-middle-income countries from 2004 to 2020. Grounded in an augmented environmental Kuznets curve framework, financial intermediation, and financial literacy theories, the analysis employs a panel data approach. Results from panel and quantile regressions reveal that financial inclusion and financial development positively influence ESG readiness, with stronger effects in less financially developed countries. However, in upper-middle-income countries, excessive credit may increase energy-intensive consumption, moderating sustainability gains. Financial inclusion negatively affects ESG readiness at lower quantiles in low-innovation contexts but enhances it at higher quantiles in high-innovation settings. Financial development consistently supports ESG readiness, which is amplified by technological innovation. Effects are stronger in less financially developed countries, moderated by energy-intensive consumption in upper-middle-income economies. The findings underscore the critical role of technological infrastructure in maximising the sustainability benefits of financial systems, advocating for technology-supported financial inclusion and green financing. This study enriches the sustainable development literature and informs policies for achieving the UN Sustainable Development Goals.

Suggested Citation

  • Yongsheng Guo & Mirza Muhammad Naseer, 2025. "Financial Pathways to Sustainability—The Effects of Financial Inclusion, Development, and Innovation on Shaping ESG Readiness in Low- and Middle-Income Countries," IJFS, MDPI, vol. 13(3), pages 1-22, July.
    • Handle: RePEc:gam:jijfss:v:13:y:2025:i:3:p:122-:d:1693004
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    References listed on IDEAS

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    1. Machado, José A.F. & Santos Silva, J.M.C., 2019. "Quantiles via moments," Journal of Econometrics, Elsevier, vol. 213(1), pages 145-173.
    2. Blomquist, Johan & Westerlund, Joakim, 2013. "Testing slope homogeneity in large panels with serial correlation," Economics Letters, Elsevier, vol. 121(3), pages 374-378.
    3. Hauwah K. K. Abdulkareem & Sodiq Olaiwola Jimoh & Taofeekat Temitope Nofiu & Rashidat Sumbola Akande, 2025. "Leaving No One Behind: Examining the effect of financial, gender, and digital inclusion on sustainable development," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(2), pages 2519-2534, April.
    4. Diamond, Peter A, 1984. "Money in Search Equilibrium," Econometrica, Econometric Society, vol. 52(1), pages 1-20, January.
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    Cited by:

    1. Arnone, Massimo & Costantiello, Alberto & Drago, Carlo & Leogrande, Angelo, 2025. "ESG Drivers of Financial Development: A Multimethod Analysis of Domestic Credit to the Private Sector," MPRA Paper 127044, University Library of Munich, Germany.
    2. Sumeet Lal & Aliyu Ali Bawalle & Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2025. "What Determines Digital Financial Literacy? Evidence from a Large-Scale Investor Study in Japan," Risks, MDPI, vol. 13(8), pages 1-26, August.

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