Assessing the environmental sustainability prospects of financial development, biocapacity, and renewable energy

While previous studies have examined the impact of financial development on environmental sustainability, its interaction with ecological capacity remains underexplored. By integrating the modified STIRPAT framework with advanced panel quantile estimators, this study provides the first comprehensive assessment of the role of biocapacity in moderating the financial development-environmental sustainability nexus among selected countries with biocapacity reserves. Given that higher biocapacity typically indicates greater reserves of renewable natural resources (e.g., biomass, soil, water, forests), broader financial support in such countries may favour renewable energy projects over non-renewable ones, thereby mitigating environmental challenges. In this context, this study investigates the environmental implications of financial development, biocapacity, and renewable energy for ten biocapacity-rich countries from 1995 to 2020. Also, this study unveils the effectiveness of biocapacity in moderating the effect of financial development on environmental sustainability. The results indicate that biocapacity, economic complexity, and renewable energy enhance environmental sustainability, whereas financial development, economic growth, and population growth exert negative effects. Notably, the marginal effect of financial development on sustainability increases with biocapacity, suggesting that a joint expansion of both factors yields positive outcomes. These findings underscore the need for policies that protect ecosystems and regulate resource use to integrate biocapacity considerations into financial development strategies. Also, governments should align such measures with the Sustainable Development Goals (SDGs) to address environmental challenges and secure long-term environmental stability.