EFFECTS OF GREEN FINANCING AND INSTITUTIONAL QUALITY ON SUSTAINABLE DEVELOPMENT IN AFRICA

Abstract

As planet earth continue to get hotter, the negative consequences of climate change become more inescapable to its occupants and a one-off solution in the short run becomes difficult due to it dynamic nature. Africa is at the receiving end of the negative consequences of climate change due to its unique adaptive capacity. Millions of livelihoods in Africa are predominantly dependent on primary production and extractive sector which are worst hit by climate change, and this posed a more worsening threat to economic stability and peace in the continent. Hence, Africa requires finances that are strategically structured to sync social, environmental and economical concern to defend itself against climate change. This study therefore explores the role of green financing and institutional quality in harnessing sustainable development in Africa. This study utilized SEM-PLS (Structural Equation Model- Partial Least Square) technique of data analysis to examine green banking practices and sustainable development in Africa. PARDL (Panel Autoregressive– Distributive Lag) was utilize to investigate the impact of green bonds and renewable energy financing on Africa sustainable development while Panel Interaction Effect test was employed to assess the exact influence of institutional quality. The findings reveal a significant positive linkage between green banking initiatives and sustainable development outcomes in the African context. The result suggests that higher Green Banking Adoption (GBA) is associated with greater attainment of Sustainable Development (ASD). The value of green bond, interest rate on green bond and the duration of the bond, have positive and significant impacts on capital market development and carbon emissions. Only the interest rate of the green bond is found to have an insignificant impact on human capital development. In the short run, insignificant relationships were found between renewable energy utilisation and economic sustainability as well as between renewable energy utilisation and environmental sustainability. However, in the long run, the relationships are revealed to be both negative but statistically insignificant for economic sustainability although significant for environmental sustainability. Lastly, the interaction of regulatory quality with green bonds value had an insignificant impact on measures of sustainable development, however, the interaction between regulatory quality and interest rate on green bonds showed positive influence on capital market development and carbon emission. This study recommends that the Africa banking sector should unify all their operation to sync with green practices and policies. Establishment of a functional green bonds platform in Africa that will enable clear validation and trading of green finance instruments. Lower interest rate for certified green projects must be mandated to encourage capital flow and reduce the risk associated with renewable energy projects. Lastly, Africa must ensure a stable political climate as it serves as a fundamental catalyst for a sustainable green financial system needed to combat the negatives effects of climate changes