LAUSR

In the past 40 years, the continuous strengthening of the greenhouse effect has led to a significant increase in the global average temperature. Although people’s understanding of climate change has been strengthened, the world has not yet witnessed a significant decline in pollutant emissions; hence it is imperative to get to the root cause. This paper is based on the STIRPAT model framework and uses the panel data of G20 countries over the period 1999–2019 to examine the role of financial development on carbon emissions under good governance. The results show that financial development significantly promotes carbon dioxide emissions, and the impact presents an inverted “U”-shaped trend when the quadratic term of financial development is introduced. Surprisingly, governance quality indicators increase carbon emissions. However, financial development accompanied by good governance suppresses carbon emissions. Moreover, according to the grouped results of developed and developing countries, different nations should adopt differentiated strategies in development finance to implement the carbon emission targets proposed by the G20. In addition, this paper also confirms the existence of the Environmental Kuznets Curve hypothesis. In light of this, policymakers should optimize the quality of governance while shifting their agendas toward environmentally responsible financial practices to promote financial development to improve environmental quality effectively. Furthermore, strengthen international cooperation, enhance public environmental protection concepts, and take joint actions to achieve low-carbon and win-win results.