In recent years, there has been a significant increase in interest in environmental problems in the academic literature, and this topic has transformed into an interdisciplinary research area. In this context, studies focus on identifying the factors that strengthen or weaken environmental sustainability. In particular, the level of financial development is considered a prominent factor among the determinants of environmental sustainability. Considering these two variables together allows for a holistic analysis of both the causes and consequences of environmental performance. The aim of this study is to examine the theoretical basis of the effects of financial development on environmental performance, based on a literature review. When the literature is examined, studies focusing on stock markets reveal that environmental effects are asymmetric and context-specific. The literature addressing the effects of financial development and stock markets on environmental sustainability shows that this relationship does not exhibit a unidirectional and homogeneous structure. Early studies suggest that financial development can play an improving role in environmental quality. However, more recent studies emphasize that the environmental effects of financial development are not linear and are sensitive to institutional structure. The results of studies in the literature indicate that the effects of financial development on environmental sustainability vary depending on institutional structure, energy mix, and level of development. Therefore, examining the link between financial development and environmental sustainability is a crucial requirement for evaluating the effectiveness of environmental quality-based environmental policies in line with sustainable development goals.