Mitigating Risks for Climate Change: The Role of Digital Financial Policy, Innovation, Carbon Tax, and Macroeconomic Conditions on Sustainable Green Bonds

This research explores the implementation of the sustainable digital financial policy as a quasi‐natural experiment on sustainability‐linked‐green bonds for mitigating climate risks. The second New Silk Road summit emphasized the sustainable digital financial agreement of 2019, which aims to endorse smart cities, 5G investments, digital trade, and the Digital Silk Road. The sample comprised 19 treatment groups (advanced economies) and 23 control groups (emerging economies) panel from 2013 to 2022. This study employed advanced panel econometric techniques, such as multi‐year and propensity score matching‐difference‐in‐differences (PSM‐DID) quasi‐natural experiment, which further compared with the two‐step system GMM method. The findings show that the policy and pandemic enhanced the sustainability‐linked‐green bonds market and functioned as catalysts for sustainable and climate transition. Moreover, the noteworthy covariates, global innovation linkages, carbon tax, and business environment positively affect sustainability‐linked‐green bonds, while macroeconomic conditions as an increase in consumer prices exert a negative effect. Furthermore, the interaction of macroeconomic conditions with global innovation linkages contributes positively to the green bond market, whereas the interaction of carbon tax with global innovation linkages has a negative impact. Granger's non‐causality shows mixed one‐way and both‐way relationships. This research provides valuable policy implications for governments and financial institutions, and other stakeholders regarding a conducive business environment, balanced carbon taxes, fostering innovation linkages, and sustainable financing mechanisms to achieve a sustainable transition towards SDG13 and carbon neutrality in advanced and emerging economies.