Empowering Green Finance: The Role of Energy Market Competitiveness and Green Technological Innovation Under Environmental Regulation

Abstract

Green finance is increasingly viewed as a critical mechanism for accelerating environmental recovery and sustainable development, yet existing research tends to focus on outcomes rather than drivers. We examine firm-level determinants of green finance in Saudi manufacturing firms during 2010–2021, focusing on energy market competitiveness, environmental regulation, and green innovation. The analysis uses panel data from 35 firms and methods including partial least squares, GMM, fixed effects, and random effects to ensure robustness. Our results show that stricter environmental regulation and greater market competitiveness significantly enhance green finance performance. Crucially, product-oriented green innovations lead to quicker adoption of green finance than advanced eco-innovations, likely because they offer faster financial returns. By identifying these policy and market drivers in an oil-dependent economy, the study provides actionable guidance for regulators and managers to calibrate environmental rules, strengthen competitive conditions, and accelerate investment in cleaner production and sustainable finance, supporting Saudi Arabia’s sustainable development goals.

Keywords

market competitiveness green finance green innovation environmental policies green growth

Get full access to this article

View all access options for this article.

References

Abbas

Wang

Ben Belgacem

Pawar

P. S.

Najam

Abbas

(2023). Investment in renewable energy and electricity output: Role of green finance, environmental tax, and geopolitical risk: Empirical evidence from China. Energy, 269, 126683. https://doi.org/10.1016/j.energy.2023.126683

Aboalsamh

H. M.

Khrais

L. T.

Albahussain

S. A.

(2023). Pioneering perception of green fintech in promoting sustainable digital services application within smart cities. Sustainability, 15(14), 11440. https://doi.org/10.3390/su151411440

Abro

A. A.

Alam

Murshed

Mahmood

Musah

Rahman

A. K. M. A.

(2023). Drivers of green growth in the Kingdom of Saudi Arabia: can financial development promote environmentally sustainable economic growth? Environ Sci Pollut Res, 30(9), 23764–23780. https://doi.org/10.1007/s11356-022-23867-z

Acemoglu

Aghion

Bursztyn

Hemous

(2012). The environment and directed technical change. American Economic Review, 102(1), 131–166. https://doi.org/10.1257/aer.102.1.131

Akben-Selcuk

(2016). Factors affecting firm competitiveness: Evidence from an emerging market. International Journal of Financial Studies, 4(2), 9. https://doi.org/10.3390/ijfs4020009

Alajmi

R. G.

(2021). Factors that impact greenhouse gas emissions in Saudi Arabia: Decomposition analysis using LMDI. Energy Policy, 156, 112454. https://doi.org/10.1016/j.enpol.2021.112454

Algamdi

Brika

S. K. M.

Musa

Chergui

(2021). COVID-19 deaths cases impact on oil prices: Probable scenarios on Saudi Arabia economy. Frontiers in Public Health, 9, 620875. https://doi.org/10.3389/fpubh.2021.620875

Ali

Kirikkaleli

Oláh

Altuntaş

(2023). Do green technological innovation, financial development, economic policy uncertainty, and institutional quality matter for environmental sustainability? All Earth, 35(1), 82–101. https://doi.org/10.1080/27669645.2023.2200330

Alonso

A. D.

O. T. K.

Nguyen

T. Q.

McClelland

Nguyen

N. M.

Huynh

H. T. N.

Nguyen

T. T.

Akbari

Atay

(2025). Unleashing the process of industry 4.0 adoption: A resource-based view and new stakeholder theory approach. Business Process Management Journal, 31(7), 2976–3002. https://doi.org/10.1108/BPMJ-09-2024-0856

10.

Al-Qudah

A. A.

Hamdan

Al-Okaily

Alhaddad

(2022). The impact of green lending on credit risk: Evidence from UAE’s banks. Environmental Science and Pollution Research, 30(22), 61381–61393. https://doi.org/10.1007/s11356-021-18224-5

11.

Al-Sinan

M. A.

Bubshait

A. A.

Alamri

(2023). Saudi Arabia’s journey toward net-zero emissions: Progress and challenges. Energies, 16(2), 978. https://doi.org/10.3390/en16020978

12.

Al-Thaqeb

S. A.

Algharabali

B. G.

Alabdulghafour

K. T.

(2022). The pandemic and economic policy uncertainty. International Journal of Finance and Economics, 27(3), 2784–2794. https://doi.org/10.1002/ijfe.2298

13.

Ambec

Cohen

M. A.

Elgie

Lanoie

(2013). The Porter hypothesis at 20: Can environmental regulation enhance innovation and competitiveness? Review of Environmental Economics and Policy, 7(1), 2–22. https://doi.org/10.1093/reep/res016

14.

Baril

P.-L.

(2021). The Citizen’s Guide to Climate Success: Overcoming Myths That Hinder Progress, de Mark Jaccard (p. 292). Cambridge University Press.

15.

Barney

(1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108

16.

Belgacem

S. B.

Adam

N. A.

Khatoon

Pawar

P. S.

(2023). Do green finance, low-carbon energy transition, and economic growth help in environmental investment? Empirical evidence from emerging economies in Asia. Geological Journal n/a, 58(9), 3259–3267. https://doi.org/10.1002/gj.4712

17.

Chen

Y.-S.

(2010). The drivers of green brand equity: Green brand image, green satisfaction, and green trust. Journal of Business Ethics, 93(2), 307–319. https://doi.org/10.1007/s10551-009-0223-9

18.

Chishti

M. Z.

Sinha

(2022). Do the shocks in technological and financial innovation influence the environmental quality? Evidence from BRICS economies. Technology in Society, 68, 101828. https://doi.org/10.1016/j.techsoc.2021.101828

19.

Debrah

Kaodui

Ying

Sulemana

(2025). Green finance and corporate environmental performance: Based on the mediating role of green technology investment and the moderating role of government environmental policies. Sustainable Development, sd.70540. https://doi.org/10.1002/sd.70540

20.

Dong

Wang

Liao

Hou

(2026). The impact of environmental regulation on differentiated green innovation in firms: The moderating role of top management’s green attention. Corporate Social Responsibility and Environmental Management, 30(1), 45–60. https://doi.org/10.1002/csr.70451

21.

Energy Information Administration (EIA) . (2023). Country analysis. U.S. Department of Energy.

22.

Fan

Abbas

Zhong

Pawar

P. S.

Adam

N. A.

Alarif

G. B.

(2023). Role of organizational and environmental factors in firm green innovation and sustainable development: Moderating role of knowledge absorptive capacity. Journal of Cleaner Production, 411, 137262. https://doi.org/10.1016/j.jclepro.2023.137262

23.

Fernando

Jabbour

C. J. C.

Wah

W.-X.

(2019). Pursuing green growth in technology firms through the connections between environmental innovation and sustainable business performance: Does service capability matter? Resources, Conservation and Recycling, 141, 8–20. https://doi.org/10.1016/j.resconrec.2018.09.031

24.

Freeman

R. E.

(1984). Strategic management: A stakeholder approach. Pitman.

25.

Grechyna

Ofori

P. E.

(2025). Robust determinants of green finance. Energy Economics, 152, 109003. https://doi.org/10.1016/j.eneco.2025.109003

26.

Hanif

Ahmed

Younas

(2023). Examining the impact of environmental management accounting practices and green transformational leadership on corporate environmental performance: The mediating role of green process innovation. Journal of Cleaner Production, 414, 137584. https://doi.org/10.1016/j.jclepro.2023.137584

27.

Hassan

S. S.

(2000). Determinants of market competitiveness in an environmentally sustainable tourism industry. Journal of Travel Research, 38(3), 239–245. https://doi.org/10.1177/004728750003800305

28.

Huang

Luan

(2024). Can green finance support improve environmental firm performance? Evidence from listed environmental firms in China. Finance Research Letters, 70, 106321. https://doi.org/10.1016/j.frl.2024.106321

29.

Huo

Zaman

B. U.

Zulfiqar

Kocak

Shehzad

(2023). How do environmental technologies affect environmental degradation? Analyzing the direct and indirect impact of financial innovations and economic globalization. Environmental Technology & Innovation, 29, 102973. https://doi.org/10.1016/j.eti.2022.102973

30.

International Monetary Fund . (2024). Saudi Arabia economic outlook. IMF.

31.

Iqbal

Naeem

M. A.

Karim

Haseeb

(2024). Crash risk connectedness in commodity markets. The European Journal of Finance, 30(11), 1270–1294. https://doi.org/10.1080/1351847X.2023.2287673

32.

Jaccard

(2019). The citizen’s guide to climate success: Overcoming myths that hinder progress. Cambridge University Press.

33.

Jaffe

A. B.

Palmer

(1997). Environmental regulation and innovation: A panel data study. Review of Economics and Statistics, 79(4), 610–619. https://doi.org/10.1162/003465397557196

34.

Jaffe

A. B.

Palmer

(1997). Environmental regulation and innovation: A panel data study. The Review of Economics and Statistics, 79(4), 610–619. https://doi.org/10.1162/003465397557196

35.

Jiakui

Abbas

Najam

Liu

Abbas

(2023). Green technological innovation, green finance, and financial development and their role in green total factor productivity: Empirical insights from China. Journal of Cleaner Production, 382, 135131. https://doi.org/10.1016/j.jclepro.2022.135131

36.

Jin

Gao

Pan

(2023). Research on the impact mechanism of environmental regulation on green total factor productivity from the perspective of innovative human capital. Environ Sci Pollut Res, 30(1), 352–370. https://doi.org/10.1007/s11356-022-22120-x

37.

Jochem

Sathaye

Bouille

(2000). Society, behavior, and climate change mitigation. Springer. https://doi.org/10.1007/0-306-48160-X?urlappend=%3Futm_source%3Dresearchgate.net%26utm_medium%3Darticle

38.

Johnstone

Haščič

Popp

(2010). Renewable energy policies and technological innovation: Evidence based on patent counts. Environmental and Resource Economics, 45(1), 133–155. https://doi.org/10.1007/s10640-009-9309-1

39.

Joint Research Centre (European Commission) . (2021). Annual activity report 2020. European Commission. https://commission.europa.eu/publications/annual-activity-report-2020-joint-research-centre_en.

40.

Khan

S. A. R.

Umar

(2022). A road map for environmental sustainability and green economic development: An empirical study. Environmental Science and Pollution Research, 29(11), 16082–16090. https://doi.org/10.1007/s11356-021-16961-1

41.

Lee

(2023). Drivers of green supply chain integration and green product innovation: A motivation-opportunity-ability framework and a dynamic capabilities perspective. Journal of Manufacturing Technology Management, 34, 476–495. https://doi.org/10.1108/JMTM-09-2022-0311

42.

Liang

Chiu

Y. H.

Guo

Yun

(2020). Study on the effect of environmental regulation on the green total factor productivity of logistics industry from the perspective of low carbon. Sustainability (Switzerland), 12(1), 175. https://doi.org/10.3390/SU12010175

43.

Lin

(2022). How does digital finance influence green technology innovation in China? Evidence from the financing constraints perspective. Journal of Environmental Management, 320, 115833. https://doi.org/10.1016/j.jenvman.2022.115910

44.

Liou

R.-S.

Ting

P.-H.

Chen

Y.-Y.

(2023). The cost of foreign ownership: Voluntary sustainability reporting and financial performance in an emerging economy. Cross Cultural & Strategic Management, 30(3), 581–612. https://doi.org/10.1108/CCSM-09-2021-0165

45.

Najam

Abbas

(2023). Unleashing the role of green innovation practices, green dynamic capabilities, and green knowledge management capabilities on firm sustainable performance. Business Strategy and the Environment Bse, 3308, pp. 3417–3431. https://doi.org/10.1002/bse.3308

46.

North

D. C.

(1990). Institutions, institutional change and economic performance. In: Institutions, Institutional Change and Economic Performance. Cambridge University Press.

47.

Pigou

A. C.

(1920). The economics of welfare. Transaction Publishers.

48.

Porter

M. E.

(1980). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Free Press.

49.

Porter

M. E.

Van der Linde

(1995). Toward a new conception of the environment-competitiveness relationship. Journal of Economic Perspectives, 9(4), 97–118. https://doi.org/10.1257/jep.9.4.97

50.

Rennings

Rammer

(2009). Increasing energy and resource efficiency through innovation - An explorative analysis using innovation survey data. SSRN Electronic Journal, pp.1–27. https://doi.org/10.2139/ssrn.1495761

51.

Samargandi

Sohag

(2022). The interaction of finance and innovation for low carbon economy: Evidence from Saudi Arabia. Energy Strategy Reviews, 41, 100847. https://doi.org/10.1016/j.esr.2022.100847

52.

Scholtens

Kang

F.-C.

(2012). Corporate social responsibility and earnings management: Evidence from Asian economies. Corporate Social Responsibility and Environmental Management, 20(2), 95–112. https://doi.org/10.1002/csr.1286

53.

Scott

W. R.

(2008). Institutions and organizations: Ideas and interests (3rd ed.). Sage.

54.

Shahbaz

Nasir

M. A.

Roubaud

(2018). Environmental degradation in France: The effects of FDI, financial development, and energy innovations. Energy Economics, 74, 843–857. https://doi.org/10.1016/j.eneco.2018.07.020

55.

Sovacool

B. K.

(2008). The costs of failure: A preliminary assessment of major energy accidents, 1907–2007. Energy Policy, 36(5), 1802–1820. https://doi.org/10.1016/j.enpol.2008.01.040

56.

Streimikiene

Kaftan

(2021). Green finance and the economic threats during COVID-19 pandemic. Terra Economicus, 19(2), 105–113. https://doi.org/10.18522/2073-6606-2021-19-2-105-113

57.

Syed

Q. R.

Bouri

(2022). Impact of economic policy uncertainty on CO₂ emissions in the United States: Evidence from a bootstrap ARDL approach. Journal of Public Affairs, 22(3), e2595. https://doi.org/10.1002/pa.2595

58.

Taghizadeh-Hesary

Yoshino

(2020). Sustainable solutions for green financing and investment in renewable energy projects. Energies, 13(4), 788. https://doi.org/10.3390/en13040788

59.

Tang

Wang

Noor

Nazir

Nasrullah

M. J.

Hussain

Larik

S. A.

(2024). Exploring the impact of green finance and green innovation on resource efficiency: The mediating role of market regulations and environmental regulations. Sustainability, 16(18), 8047. https://doi.org/10.3390/su16188047

60.

Tanthanongsakkun

Treepongkaruna

Jiraporn

(2023). Carbon emissions, corporate governance, and staggered boards. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4120632

61.

Teece

D. J.

(2018). Business models and dynamic capabilities. Long Range Planning, 51(1), 40–49. https://doi.org/10.1016/j.lrp.2017.06.007

62.

Tian

Zhang

(2023). How does digital finance impact regional green innovation? Evidence from China’s city-level data. Finance Research Letters, 46, 102287. https://doi.org/10.1016/j.frl.2021.102287

63.

Tiwari

Mohammed

K. S.

Balsalobre-Lorente

(2025). Green finance: A pathway to achieving carbon neutrality and sustainable development. Sustainable Development, 33(S1), 988–1002. https://doi.org/10.1002/sd.70047

64.

Tong

Jabbour

Belgacem

Najam

Abbas

(2022). Role of environmental regulations, green finance, and investment in green technologies in green total factor productivity. Journal of Cleaner Production, 380, 134930. https://doi.org/10.1016/j.jclepro.2022.134930

65.

Tripopsakul

(2025). ESG practices, green innovation, and financial performance: Evidence from ASEAN firms. Journal of Risk and Financial Management, 18(8), 467. https://doi.org/10.3390/jrfm18080467

66.

Udeagha

M. C.

Ngepah

(2023a). Striving towards environmental sustainability in the BRICS economies: The combined influence of fiscal decentralization and environmental innovation. International Journal of Sustainable Development & World Ecology, 30(2), 111–125. https://doi.org/10.1080/13504509.2022.2123411

67.

Udeagha

M. C.

Ngepah

(2023b). The drivers of environmental sustainability in BRICS economies: Do green finance and fintech matter? World Development Sustainability, 3, 100096. https://doi.org/10.1016/j.wds.2023.100096

68.

United Nations Conference on Trade Development

(UNCTAD).

(2022). World Investment Report 2022: International tax reforms and sustainable investment. United Nations. https://unctad.org/publication/world-investment-report-2022

69.

H. M.

(2020). A review of dynamic capabilities, innovation capabilities, entrepreneurial capabilities and their consequences. Journal of Asian Finance, Economics and Business, 7(8), 485–494. https://doi.org/10.13106/jafeb.2020.vol7.no8.485

70.

Wang

Liu

Zhu

Yan

Chen

(2024). Environmental regulations, green technological innovation, and green economy: Evidence from China. Sustainability, 16(13), 5630, pp. 125–148. https://doi.org/10.3390/su16135630

71.

World Bank . (2023). Oil rents (% of GDP) – Saudi Arabia. https://data.worldbank.org

72.

Xie

Zhu

Wang

(2023). How does digital finance affect corporate green innovation? Evidence from Chinese listed manufacturing firms. Journal of Cleaner Production, 412, 137299. https://doi.org/10.1016/j.jclepro.2023.137299

73.

Zhao

(2023). Does green finance promote green total factor productivity? Empirical evidence from China. Sustainability, 15(14), 11204. https://doi.org/10.3390/su151411204

74.

Xin

Zhang

Lou

C. X.

Shee

H. K.

(2023). Strategic entrepreneurship and sustainable supply chain innovation from the perspective of collaborative advantage. Sustainability, 15(17), 12879. https://doi.org/10.3390/su151712879

75.

Jing

Shahzad

Xiao

(2023). Sustainable innovation in small and medium-sized enterprises: Environmental regulations and digitalization as catalyst. The Journal of Environment & Development, 32(4), 413–443. https://doi.org/10.1177/10704965231211585

76.

(2023). Competitive strategy, development zone policy and firm growth: Empirical evidence from China. PLOS ONE, 18(10), e0292904. https://doi.org/10.1371/journal.pone.0292904

77.

Zhang

Mohsin

Rasheed

A. K.

Chang

Taghizadeh-Hesary

(2021). Public spending and green economic growth in BRI region: Mediating role of green finance. Energy Policy, 153, 112256. https://doi.org/10.1016/j.enpol.2021.112256

78.

Zhou

Tang

Zhang

(2020). Impact of green finance on economic development and environmental quality: A study based on provincial panel data. Environmental Science and Pollution Research, 27(16), 19915–19932. https://doi.org/10.1007/s11356-020-08383-2

79.

Zhou

Haseeb

Batool

Bousrih

(2024). Achieving carbon-neutrality goals in Asian emerging economies: Role of investment in clean energy, eco-regulations, and green finance. Gondwana Research, 145, 183–193. https://doi.org/10.1016/j.gr.2024.06.017