Financial Sector Development and Renewable Energy in BRICS Countries

According to a recent study, the development of financial sectors in BRICS countries has a complex relationship with carbon dioxide emissions associated with power sectors. While financial sector development tends to increase emissions in the short-term, it also has a mitigating effect when combined with natural resource dependency. The study highlights the importance of adopting green financial sector development policies to promote environmental sustainability in the BRICS bloc.

Key Takeaways:

• Financial sector development in BRICS countries is likely to increase power sector-based carbon dioxide emissions in the short-term, but its long-term effects are mixed.
• Natural resource dependency is found to exert a positive effect on carbon dioxide emissions in the long-run, while financial sector development and natural resource dependency are jointly observed to mitigate yearly emissions figures.
• Developing the financial sector by providing green financial services can enhance the productivity of natural resource sectors, which might enable BRICS countries to partially offset the emissions-boosting impacts associated with natural resource dependency.
• Enhancing the quality of institutions can also enhance emissions levels, while international trade's effect on emissions is not statistically conclusive.
• The findings hold across most natural resource types considered in the study, and the robustness of the results is confirmed by alternative estimation techniques.

Statistics:

• The BRICS bloc accounts for around half of global carbon-dioxide (CO2) emissions associated with energy use.
• The study evaluates the impact of financial sector development on power sector-based carbon dioxide emissions (PSCO2) in the BRICS countries.
• The study finds that financial sector development is likely to increase yearly PSCO2 as it develops, but its long-term effects are mixed.
• The natural resource-CO2 emissions nexus exhibits heterogeneity across dependencies on different types of natural resources.
• The study estimates that developing the financial sector by providing green financial services can enhance the productivity of natural resource sectors, which might enable BRICS countries to partially offset the PSCO2-boosting impacts associated with natural resource dependency.

Sources:

• Does financial sector development mitigate power sector-based carbon dioxide emissions to establish environmental sustainability in BRICS? Journal of Environmental Management, 2025;394:127527.
• Prince Sultan University, Finance Department, College of Business Administration, Riyadh, Saudi Arabia.