Sovereign Green Bonds and Environmental Performance: the Moderating Role of Formal and Informal Institutional Frameworks from a Global Perspective

Abstract

Works on green bonds and environmental performance have gained significant attention in recent years due to the growing threat of climate change. This study looks at the connections between institutional frameworks, environmental performance, and sovereign green bonds globally. The study uses a mixed-method approach using a First Difference General Method of Moments (GMM) panel estimator to evaluate these associations using data from 71 nations from 2007 to 2022. The findings show that green bond issuance has a major positive impact on environmental performance, implying that greener bond financing might help with climate change mitigation efforts. Furthermore, the study shows that both formal and informal institutional frameworks have important roles in improving environmental performance. Significantly, the study indicates that institutional frameworks moderate the link between environmental performance and green bonds, suggesting that stronger institutions augment the positive environmental effects of green bonds. These findings highlight the need of supporting policies to develop green bond markets and institutional frameworks in order to maximise the efficiency of sustainable finance in resolving global environmental concerns. They also have important implications for investors and policymakers. The study recommends governments actively promote green bonds through supportive policies. It also recommends the need for strong institutional frameworks to ensure green bonds effectively contribute to environmental improvements and combat climate change.