In this work, we examine the correlation between financial inclusion and the Environmental,
Social, and Governance (ESG) factors of sustainable development with the assistance
of an exhaustive panel dataset of 103 emerging and developing economies spanning 2011
to 2022. The “Account Age” variable, standing for financial inclusion, is the share
of adults owning accounts with formal financial institutions or with the providers
of mobile money services, inclusive of both conventional and digital entry points.
Methodologically, the article follows an econometric approach with panel data regressions,
supplemented by Two-Stage Least Squares (2SLS) with instrumental variables in order
to control endogeneity biases. ESG-specific instruments like climate resilience indicators
and digital penetration measures are utilized for the purpose of robustness. As a
companion approach, the paper follows machine learning techniques, applying a set
of algorithms either for regression or for clustering for the purpose of detecting
non-linearities and discerning ESG-inclusion typologies for the sample of countries.
Results reflect that financial inclusion is, in the Environmental pillar, significantly
associated with contemporary sustainability activity such as consumption of green
energy, extent of protected area, and value added by agriculture, while reliance on
traditional agriculture, measured by land use and value added by agriculture, decreases
inclusion. For the Social pillar, expenditure on education, internet, sanitation,
and gender equity are prominent inclusion facilitators, while engagement with the
informal labor market exhibits a suppressing function. For the Governance pillar,
anti-corruption activity and patent filing activity are inclusive, while diminishing
regulatory quality, possibly by way of digital governance gaps, has a negative correlation.
Policy implications are substantial: the research suggests that development dividends
from a multi-dimensional approach can be had through enhancing financial inclusion.
Policies that intersect financial access with upgrading the environment, social expenditure,
and institutional reconstitution can simultaneously support sustainability targets.
These are the most applicable lessons for the policy-makers and development professionals
concerned with the attainment of the SDGs, specifically over the regions of the Global
South, where the trinity of climate resilience, social fairness, and institutional
renovation most significantly manifests.
