This study examines the impact of financial inclusion on CO2 emissions using a sample of 31 Asian

countries during the period 2004–2014. Three composite indicators for financial inclusion are
constructed using principal component analysis (PCA) based on normalized variables. To estimate the
model, we adopted the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors for
linear panel models that are not only heteroskedasticity consistent but also robust to general forms
of cross-sectional dependence. We find that income, energy consumption, industrialization,
urbanization, FDI and financial inclusion appear to have led to higher emissions of CO2 in the region.
Meanwhile, increased openness to trade seems to have reduced CO2 emissions. The findings are
qualitatively robust to different proxies of financial inclusions and reasonable modifications to
specification of the model. The empirical results imply that there are currently no policy synergies
between growing financial inclusion and mitigating CO2 emissions. Thus, financial inclusion should be
integrated into climate change adaptation strategies at local, national and regional levels, especially
to address the side effect of higher CO2 emissions associated with improved financial inclusion. 1.
Introduction Financial development is a significant and inextricable part of the growth process (Le et
al., 2019a). Financial inclusion is an integral dimension of financial development; it contribut