Environmental impacts of green bonds in cross-countries analysis: a moderating effect of institutional quality

Purpose - This paper aims to investigate the impacts of green bond issuance on the environment while taking into account the moderating role of issuing countries’ institutional quality. Design/methodology/approach - The analysis is based on a longitudinal data set covering 171 countries and territories during 2007–2018. The authors rigorously account for endogeneity issues using two-stage least squares estimation and a set of instrumental variables for green bond issuance volume. 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). However, these effects are contingent upon the levels of institutional development of the issuing countries in a way that green bond issuance only benefits the environment when the institutional quality has reached a minimum level. Practical implications - The results provide important policy implications for countries in their efforts to prevent environmental degradation and achieve SDGs. Originality/value - This paper contributes to the existing literature by providing a macro-level evaluation of the environmental impact of green bonds, hence, enabling policy implications to be drawn for countries to achieve their SDGs. The analysis is more comprehensive using a wide range of indicators for environmental performance. To the best of the authors’ knowledge, this paper is also one of the first attempts to examine the moderating effect of institutions on the environmental impact of green bonds.