Circular Economy and Sustainable Development: Evidence From Green Innovation, Energy Transition, and Green Investment on Ecological Footprint in G7 Countries

Abstract

Achieving sustainable development in advanced economies requires accelerating the transition toward a circular economy while mitigating escalating ecological pressures. Despite growing policy attention, evidence remains limited on the joint effects of green finance, green innovation, municipal waste recycling, energy transition, economic growth, and population on the ecological footprint in the G7 countries during 1995–2023. Using a multivariate quantile‐on‐quantile regression framework, this study captures distributional heterogeneity in the relationships between these determinants and the ecological footprint. The results show that green finance consistently reduces the ecological footprint, with stronger mitigation effects beyond the middle quantiles. In contrast, green innovation and municipal waste recycling show positive effects across most quantiles, while the effect of energy transition is heterogeneous, remaining positive at lower and middle quantiles before becoming slightly negative at the highest quantiles. Economic growth and population also increase the ecological footprint, with the impact of economic growth becoming substantially stronger at higher quantiles. To address potential endogeneity, instrumental variable quantile regression with lagged instruments is employed, and the results remain robust. For managers, the results highlight the importance of directing green finance toward projects with demonstrable environmental benefits while systematically evaluating the environmental performance of innovation, recycling, and energy transition initiatives to ensure that circular economy investments translate into lower ecological pressure. By revealing how the effects of circular economy drivers vary across ecological footprint regimes, this study provides targeted guidance for policymakers and business leaders seeking to strengthen long‐term ecological sustainability and advance the Sustainable Development Goals.