Green Finance and Environmental Sustainability: An Empirical Evaluation of Financial Instruments in the Azerbaijani Economy
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Vugar MEHDIYEV Accounting and Audit Department, Azerbaijan University of Economics. Baku, Azerbaijan
This study empirically investigates the relationship between green finance instruments and environmental sustainability in Azerbaijan over the period 2010–2023. Using an Autoregressive Distributed Lag (ARDL) bounds testing approach, the study examines how green bonds, ESG-oriented lending, renewable energy finance, and the composite Green Finance Index (GFI) affect CO₂ emissions in a transition economy heavily dependent on fossil fuel revenues.
The empirical findings confirm long-run cointegration among the variables and validate the Environmental Kuznets Curve (EKC) hypothesis for Azerbaijan. Long-run coefficients indicate that a one percent increase in the Green Finance Index reduces CO₂ emissions by 0.314% (p < 0.01), while ESG lending reduces emissions by 0.202% (p < 0.05). Renewable energy share exhibits the strongest negative effect (−0.482, p < 0.01). The Error Correction Term (ECT = −0.581) implies that approximately 58% of short-run disequilibria are corrected annually. Diagnostic tests confirm model stability, absence of serial correlation, and homoscedastic residuals.
The study contributes original empirical evidence from a resource-rich transition economy, offering actionable policy recommendations including mandatory green bond taxonomies, blended finance frameworks, and carbon-linked financial instruments. These findings have significant implications for policymakers in Azerbaijan and comparable resource-dependent economies navigating the green transition.
Copyright© 2026 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Article’s History: Received 15th of March, 2026; Revised 24th of April, 2026; Accepted 29th of May, 2026; Available online: 30th of June, 2026. Published as research article in the Volume XXI, Summer, Issue 3(93), 2026.
Musayev, A., Orjonikidze, T., & Mehdiyev, V. (2026). Green Finance and Environmental Sustainability: An Empirical Evaluation of Financial Instruments in the Azerbaijani Economy. Journal of Applied Economic Sciences, Volume XXI, Summer, 3(93), 777 –. 790. https://doi.org/10.57017/jaes.v21.3(93).05
Acknowledgments/Funding: The author thanks the State Statistical Committee of the Republic of Azerbaijan, and the European Bank for Reconstruction and Development (EBRD) for making key data series available. No external funding was received for this research.
Conflict of Interest Statement: The author declares that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.
Data Availability Statement: The data that support the findings of this study are available from the corresponding author upon reasonable request.
Ethical Approval Statement: This study is based exclusively on secondary data and publicly available statistical sources. Therefore, ethical approval was not required.
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