Do green bonds reduce CO2 emissions? Evidence from developed and developing nations (2024)

Abstract

Purpose

The rapid global economic development in the last century, led by industrialization, brings environmental issues to the forefront as a serious concern. While some country-specific studies are undertaken to find the effectiveness of different mechanisms for funding environment-friendly projects, to the authors' knowledge, no study has been conducted to examine the impact of green bonds (GBs) on CO2 emissions for a global sample. Against this backdrop, this study examines the general impact of GBs on CO2 emissions and its differential impact for developed and developing countries and country categorizations based on sustainable development.

Design/methodology/approach

The study selects a sample of 44 countries from 2016–2020. The authors use trend analysis and box plots to analyze the present GBs and CO2 emissions scenarios. Further, the panel data regression model is used to examine the overall impact of GBs on CO2 emissions and uncover the variation in such relationships regarding country-level economic and sustainable development. Generalized methods of moments (GMM) and instrumental variables (IV) models are used for robustness.

Findings

The yearly trend of GBs is upward at the global level, while CO2 emissions exhibit a marginal decline during the study period. However, significant variations are observed in such trends between developed and developing countries and country-level sustainable development. The authors' regression results show that GBs significantly negatively impact CO2 emissions globally. In addition, the effect of GBs on CO2 emissions is strongly negative for developing countries, while the same influence becomes weak for developed nations. Similar variations exist between countries based on sustainable development.

Originality/value

This is the first study in extant literature to examine such a relationship for a global sample of 44 countries. Further, this study makes a novel contribution by analyzing the variations in the GBs-CO2 emissions nexus for developed and developing countries and country-level sustainable development.

Keywords

Citation

Saha, R. and Maji, S.G. (2023), "Do green bonds reduce CO2 emissions? Evidence from developed and developing nations", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-05-2023-0765

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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Do green bonds reduce CO2 emissions? Evidence from developed and developing nations (2024)

FAQs

Do green bonds reduce CO2 emissions? Evidence from developed and developing nations? ›

Our regression analysis indicates a negative impact of GB on CO2 emissions at the global level. Moreover, our findings also exhibit that the negative impact of GBs on CO2 emissions is relatively high for developing countries compared to developed countries.

Do green bonds actually reduce carbon emissions? ›

We show that, between 2009 and 2019, energy firms, utilities and banks that issued a green bond were much more likely to disclose emissions data, and they have on average reduced their carbon intensity to a larger extent than other firms confirming -related commitments.

How effectively do green bonds help the environment? ›

The findings suggest that green bonds can help firms finance carbon reductions, but they also indicate that a considerable fraction of green bond financing does not lead to measurable benefits for the environment.

What are the benefits of green bonds? ›

Green bonds may offer tax advantages, providing incentives for investing in sustainable projects that do not apply to comparable types of bonds. Investors seeking assets that align with their environmental values should be sure to verify the claims of sustainability made by bond issuers.

Can green bonds reduce the carbon emissions of cities in China? ›

Green bonds suppress the amount and the intensity of carbon emissions in cities. Green innovation works in the carbon mitigation effect of green bonds.

How does green energy reduce co2? ›

As a greenhouse gas, carbon dioxide traps heat in the earth's atmosphere, contributing to global warming. In contrast, renewable energy sources like solar and wind power don't produce carbon emissions as part of the electricity generation process. Instead they harness the natural energy from the sun and the weather.

What are the environmental impacts of green bonds? ›

Findings. The overall results confirm the positive environmental impacts of green bonds in reducing carbon dioxide and greenhouse gas emissions, enhancing renewable energy consumption rate and accelerating the progress towards sustainable development goals (SDGs).

Are green bonds successful? ›

The green bond market continues to grow rapidly, according to the World Economic Forum's report, Fostering Effective Energy Transition 2023, which noted $270 billion worth of issuances in 2020.

What are the challenges of green bonds? ›

The green bonds market comes with its challenges. Infrastructure financing includes manifold risks such as uncertainty of the tenure of the project, and lower returns than other comparable financial assets.

Are green bonds more risky? ›

Green bonds are more susceptible to geopolitical risk in times of high volatility. Corporate and sovereign bonds less vulnerable to geopolitical risk than green bonds.

What is the difference between ESG bonds and green bonds? ›

ESG bonds refer to any bond with set environmental, social, or governance objectives. This can include everything from affordable housing to improved infrastructure, reduction of racial or gender inequity, or renewable energy. Green bonds specifically focus on issues related to the climate and environment.

Are green bonds greenwashing? ›

The European green bond standard would allow better regulation of the green bond market, improving supervision, making it transparent, and preventing firms from presenting themselves as more environmentally friendly than they really are, a practice known as greenwashing.

Who pays for green bonds? ›

The investor in a green bond becomes a creditor of the issuing entity, and the latter will have to pay back the money borrowed through this bond — within the estimated time — plus a previously (usually) fixed amount of interest, known as a coupon. It is therefore a fixed income instrument.

Which country has done the most to reduce carbon emissions? ›

Countries leading the energy transition
  • Sweden. It is no surprise that Sweden tops the index: the country is aiming to cut greenhouse gas emissions by 59% by 2030 compared with 2005, and to have a net-zero carbon economy by 2045. ...
  • Norway. ...
  • Denmark. ...
  • Switzerland. ...
  • Austria. ...
  • Finland. ...
  • United Kingdom. ...
  • New Zealand.
Apr 13, 2023

Why does China emit so much more CO2 than all other countries? ›

China manufactures half of the world's steel, producing roughly five times more than the European Union. Similar to cement, steel production is a coal and coke-intensive process. Each ton of steel produces two tons of carbon dioxide.

What is China doing to reduce CO2 emissions? ›

China's shrinking carbon footprint is partly a result of investments in wind and solar power that are replacing coal as an energy source. China is on track to reach a goal of installing 1,200 gigawatts of renewables five years ahead of schedule.

Are green bonds worth it? ›

In comparison to other three year fixed rate bonds, the interest rate for their green savings bonds is less competitive than other products with equivalent term lengths, so if earning interest is your priority, you could consider other options over the NS&I green savings bond.

What reduces carbon emissions the most? ›

Cutting down on the miles you drive is one of the best things you can do for reducing carbon emissions. Organize shopping trips to get more done on each outing, walk or bike when distances are shorter, and use public transportation as much as possible.

Can green credit reduce the emissions of pollutants? ›

Green credit and environmental conditions. Green credit has effectively decreased the pollution and energy consumption of high-emission enterprises (15), and the literature has generally concluded that green credit can greatly improve environmental quality.

References

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