Recep Alper ÇELİK
This research paper interrogates how sustainability uncertainty modifies CO2 emissions in relation to financial development within the context of Real Options Theory. Comprehensive econometric analyses, including ARDL, VAR, Granger Causality, and Variance Decomposition, were performed using annual data from 2002 to 2024 in Italy and France, both of which have similar levels of economic development and are members of the EU. Sustainability uncertainty is not so much a direct effect but, rather a strong moderating factor on the environmental impact of financial development. The analysis findings resulted two main conclusions. First, in both countries, sustainability uncertainty had no significant impact on CO2 emissions, and the effect of financial development was unstable in an uncertain environment, thus yielding results consistent with the "wait option" behavior predicted by the Real Options Theory. Secondly, comparisons between countries yielded different results, in the analysis of variance decomposition, 93% of the fluctuations in CO2 in Italy were due to their shocks, whereas in France, the explanatory share of uncertainty reached 20%. Furthermore, uncertainty was found to be a significant Granger cause of financial development in France, whereas no such relationship was found in Italy. These findings indicate that uncertainty is an indirect background factor halting investment in Italy, whereas in France, it is a systemic risk directly impacting the financial system. The study concludes that, from a policymaker's perspective, country-specific policies should be established to reduce uncertainty to finance green transition investments in the financial development process.