The Impact of Green Finance and Financial Technology on Environmental Pollution: Testing the LCC Hypothesis for Türkiye

Abstract

This study analyzes how economic growth, green finance (GF), and financial technologies (FinTech) impact load capacity factor (LCF). In this framework, advanced econometric techniques are used to test the load capacity curve (LCC) hypothesis for Türkiye from 2008Q2 to 2020Q4. Türkiye was chosen as a research case because it is a developing economy heavily dependent on fossil fuels while facing the urgent challenge of aligning its GF and FinTech sector with the Paris Agreement and the SDGs. Several conclusions can be drawn from the results. (i) The LCC hypothesis is valid in Türkiye. Increasing pollution leads to a decrease after a certain level. (ii) Paradoxically, the growth of GF seems to lead to greater environmental pollution. This indicates that the financing of renewable energy investments is mismanaged. (iii) An increase in FinTech reduces pollution. Therefore, policymakers should prioritize GF towards low-carbon energy sources such as solar and wind energy, while encouraging the development of FinTech companies to improve environmental sustainability.