Aligning financial development and banking sustainability for environmental sustainability: empirical insights from emerging economies

This study explores the complex relationships among banking sustainability, financial development, and the ecological footprint in emerging economies, with a particular focus on public‒private partnerships (PPPs) in the energy sector. Using data from 16 emerging countries from 1990 to 2021 and the ARDL model, we highlight that banking sustainability initiatives supported by PPPs effectively reduce the ecological footprint in the short term. Our analysis introduces a novel definition of banking sustainability centered on energy investments through PPPs, offering an innovative perspective compared with traditional green finance approaches. Our results validate the environmental Kuznets curve (EKC) hypothesis, showing that, in the short term, PPPs promote the adoption of renewable energy technologies and circular economy practices, thereby improving environmental policies and supporting sustainable practices. However, we also observe a negative long-term effect, where initial benefits may be undermined by a shift in investments toward less sustainable sectors or external economic shocks. This dynamic underscores the importance of an integrated approach that combines economic growth, financial development, and environmental sustainability. We recommend that emerging economies strengthen banking sustainability policies with stringent standards for green investments, encourage PPPs in the energy sector, and align financial development strategies with environmental objectives. Our findings highlight the need for a holistic approach and innovative financial mechanisms to support sustainable economic growth while minimizing environmental impact.