This study investigates the nexus between carbon dioxide emissions, economic development, and development finance in seeking an empirical answer to the conundrum at the intersection of development and environmental economics. Employing a theoretical framework that incorporates three dimensions of endowments, the real economy, and the financial sector, our empirical model accounts for the bi-directional causality of environmental degradation and economic growth in the Global South by adopting the simultaneous equations model. Our results confirm an inverted N-shaped environment Kuznets curve which is statistically significant and robust, and consistent with the conceptualized theoretical framework. The results provide insights to enhance the effectiveness of future development finance and policy design by promoting sustainable growth and green transformation through facilitating renewable energy adoption, investing in human capital, and preserving renewable natural capital. Display omitted •Development finance’s impact on carbon emission reduction is not significant•Future development finance should aim at scalable renewable energy adoption•Developing countries need to pay attention to renewable natural capital preservation Structures