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This paper examines the dynamic linkages among economic policy uncertainty (EPU), the green bond market, the carbon market, and the macroeconomy using the time-varying parameter vector autoregressive (TVP-VAR) model with monthly data spanning from January 2016 to December 2021. Additionally, it assesses the robustness and accuracy of the empirical results through the Bayesian vector autoregressive (BVAR) model. The findings indicate that EPU negatively affects the green bond market in the short term but has a positive impact in the medium and long term. Conversely, EPU has a positive impact on the carbon market in the short term but a negative impact in the medium and long term. Furthermore, the green bond market negatively influences the carbon market in both the short and medium to long term. These results suggest that emerging markets, such as the green bond and carbon markets, are influenced by EPU. The adverse impact of the green bond market on the carbon market, however, contributes to expediting China's attainment of its low-carbon objectives. Appropriate economic policies can play a vital role in accelerating the transition to a low-carbon economy. The study also reveals that the US-China trade war has expedited the development of green capital markets in China, despite its impact on the green economic transition in the country. These findings provide insights for the government and investors to formulate suitable strategies for risk mitigation. [ABSTRACT FROM AUTHOR]

This paper aims to effectively reduce CO2 emissions by examining the impact of three distinct incentive and constraint policies on the quality of rating and certification information in China's green bond issuance market. To accomplish this, the government has implemented incentives, while regulators have introduced constraints to curb the spread of inflated rating and certification information. We build on the integrated rating and certification regulation mechanism by presenting a two-stage Stackelberg game model that involves four key participants: the China Securities Regulatory Commission, local governments, green evaluation and certification agencies, and credit rating agencies. We incorporate environmental effects indicators into the expected utility of rating and certification agencies to investigate the equilibrium conditions under three policy scenarios: a single financial incentive policy, a single regulatory constraint policy, and a combined incentive and constraint policy. The paper employs Stackelberg game theory to analyze how different policies mitigate the occurrence of "inflated" ratings and "greenwashing" in certifications. Numerical analysis is conducted to validate the theoretical findings. Moreover, we assess the impact of these policies on the quality of rating and evaluation information, using data from China's green bond issuance market between 2016 and 2021. Our research offers valuable management insights and regulatory recommendations for both regulators and local governments. [ABSTRACT FROM AUTHOR]

Investing in green bonds has been recognized as a strategy that not only promotes environmental performance but also offers attractive investment returns. However, macroeconomic factors, such as geopolitical risk (GPR), climate policy uncertainty (CPU), and global economic policy uncertainty (GEPU), play a substantial role in shaping green bond returns. Using the returns of US green bonds as a proxy for the returns of green bonds, we argue in this paper that these heterogenous uncertainty measures might have asymmetric impacts on the returns of green bonds (GB). By employing monthly data from January 2016 to August 2022, we apply the nonlinear autoregressive distributed lags model (NARDL) to examine the asymmetric impact of these heterogenous uncertainty measures on the returns of GB. The NARDL findings reveal evidence of short-run asymmetric impacts of GPR, GEPU, and CPU on the returns of green bonds. In the long run, there is an asymmetric impact of GPR and CPU on the returns of GB. However, there is a symmetric impact of CPU on the returns of GB in the long run. Specifically, in the short run, we found that a positive CPU shock causes a decline in the returns of green bonds. A similar magnitude of negative CPU shock causes an increase in the returns of green bonds. Moreover, a positive shock to GPR increases the return of green bonds, while a comparable negative shock to GPR reduces the return of GB. Furthermore, only negative shocks to GEPU have an impact on GB returns in the short run. Specifically, a negative GEPU shock reduces GB returns. In the long term, the returns of GB are positively impacted by negative shocks in GPR and both positive and negative shocks in GEPU, whereas positive shocks in GPR affect the returns of GB negatively. [ABSTRACT FROM AUTHOR]

Could the European Union mitigate the negative effects of economic, pandemic and environmental crises using only one tool? The answer is positive, by implementing "green" fiscal expansion financed by "green" common debt, such as issuing green bonds. In this paper, we connect the independent responses to different crises into a single response that could end them. The European Union's theoretical background is based on new-classical models, but current research findings doubt new-classical orthodoxy, underling the importance of economic federalism for sustainable economic and green growth. We argue that the Economic and Monetary Union has to speed up fiscal federalism by establishing a powerful European Union common budget using green Eurobonds and implementing fiscal transfers as a mechanism to address the consequences of the triple crisis. [ABSTRACT FROM AUTHOR]

The aim of this paper is to study the influence of the current regulatory environment on the investment decisions of sustainability-oriented institutional investorswithin theGerman-speaking region of Europe. Through the use of a structured questionnaire, aimed at institutional investors, this paper presents detailed insights into the preferences of investors when purchasing green bonds, bonds that contribute to reducing or preventing adverse effects stemming fromclimate change. After analysing our sample of 179 participants, it is demonstrated that the credibility of a green bond is a basic prerequisite for an investor to purchase such an instrument. Additionally, the attractiveness of green bonds is influenced by financial factors such as tax incentives as well as the interest rate environment. Furthermore, this paper studies the influence of environmental, social and governance (esg) strategies on green bond investment decisions, where it is revealed that the environmental pillar is the most important for investors. [ABSTRACT FROM AUTHOR]

Financial markets have the potential to magnify the adverse impacts of carbon-intensive assets, mainly in the case of a swift and unforeseen shift toward a low-carbon economy. Given that green bonds are already in the process of standardization and actively support the funding of environmental goals, this paper aims to explore their relationship with the European banking system. To achieve this objective, we utilize a cross-quantilogram approach, analyzing daily data gathered from July 2014 to January 2021 and examining bi-directional dependence. Our unique contribution lies in revealing the relationships between the green bond index and the stock market dynamics of European banks compared to their relationships with conventional stock market indices, which is a novel endeavor to the best of our knowledge. The results are consistent with prior research findings regarding the relationships between the green bond index and various companies and financial assets. These results confirm that other financial instruments impact green bonds, whereas the influence exerted by green bonds on other assets is minimal. Additionally, our study provides evidence indicating that the COVID-19 pandemic has altered the connections between these financial assets. [ABSTRACT FROM AUTHOR]

This paper attempts to formulate new theories of sustainable finance, meeting a need to establish a set of propositions that can help us understand the behaviour and actions of economic agents towards sustainable finance. The paper used a literature survey to establish a theoretical relationship between sustainable finance and the actions of economic agents. The paper proposed six theories of sustainable finance, namely, the priority theory of sustainable finance, the resource theory of sustainable finance, the peer emulation theory of sustainable finance, the life span theory of sustainable finance, the positive signalling theory of sustainable finance, and the system disruption theory of sustainable finance. These theories offer believable explanations for the behaviour and actions of economic agents towards sustainable finance. Academics, policy makers, economists, researchers and students will find these theories very useful in their work in sustainable finance. [ABSTRACT FROM AUTHOR]

This paper comprehensively analyzes the overall status of the green bond market in Latin America and the Caribbean (LAC) for the renewable energy sector. Our results show that, in most cases, issuers are non-financial corporations. Also, despite LAC's low perception of transparency, 78% of the volume issued has been externally reviewed. In general terms, the barriers imposed on issuance by local governments, mainly municipal debt ceiling, low credit rating and solvency, limited capabilities to prepare bankable projects, and lack of communication channels between the financial sector and local governments, constrain the green bond market in LAC. Furthermore, although the presence of development institutions that promote the issuance of green bonds in the renewable sector has improved in recent years, it is mandatory to continue making progress in this area. For that purpose, closer cooperation and alliances are essential to share responsibilities and knowledge in LAC. [ABSTRACT FROM AUTHOR]

In recent years, the green bond market has seen significant growth as a means of financing environmentally-friendly projects. While much research has focused on pricing, limited attention has been given to green bond investors. This paper analyzes the preferences of different investor groups for green bonds and introduces the term "green bond preferred habitat". Conceptually, green bond preferred habitat investors hold green bonds disproportionally and display lower price elasticity than other investors. This study combines information from 2693 unique green bonds with confidential bond-level portfolio holdings data from the ECB over the period 2016-Q4 to 2022-Q4, covering more than 12 million observations. The results demonstrate that European investors, particularly mutual funds and pension funds, show a high demand for green bonds. In contrast, insurance corporations tend to avoid green bonds. Our findings show that the demand for green bonds among mutual funds and pension funds is price inelastic, while banks and insurance corporations display an elastic demand. These findings are robust for potential endogeneity concerns when we apply matching techniques, are stronger for domestic green bonds, and also apply to sustainability-linked bonds. These results on the divergence in investor demand are important for green bond issuers because firms and governments issue green bonds to cater certain investors willing to sacrifice returns. One theoretical implication is that if green bond preferred habitat is sufficiently strong, it creates a price wedge due to their high demand for green bonds which explains the existence of a greenium. • Green bond markets have grown significantly in recent years, expanding to over two trillion euros in market size by the end of 2022. While the market has expanded, relatively little is known about who holds green bonds. • Using granular bond-level data from the ECB securities holdings statistics (SHS-S) we aim to fill this gap by showing that European investors invest 3.7% of their bond portfolio in green bonds, while green bonds represent only 1.5% of the total bonds outstanding value. • In particular, we show that mutual funds and pension funds invest disproportionally in green bonds and that their holdings are very price insensitive, which fits into our proposed theoretical framework of "green bond preferred habitat". By contrast and surprisingly, European insurance corporations shun green bonds. [ABSTRACT FROM AUTHOR]

With growing attention and concern regarding green instruments, in this paper, we test for the dynamic connectedness of green cryptocurrencies, green investment, conventional commodities and equities using wavelet coherence and the effect of uncertainty on their co-movements from 2018 to 2023. Contrary to previous research, our findings reveal that green cryptocurrencies do not exhibit hedge or safe haven properties, instead behaving no differently than diversifiers. Furthermore, we show a significant influence of financial uncertainty on the interconnectedness between green cryptocurrencies and other assets, indicating heightened exposure during market turmoil. As a result, less emphasis on green cryptocurrencies portfolio weightings should be placed and greater emphasis on green bonds and gold at time of financial distress. Their limited risk-reducing potential should also be considered for regulatory frameworks. Additionally, we note the similarities between green cryptocurrencies and conventional counterparts, evidenced by their dynamic homogeneity with Bitcoin and Ethereum, suggesting synchronization. Consequently, conventional cryptocurrencies could serve as proxies for green counterparts in portfolio management strategies. These findings contribute to the understanding of green cryptocurrency dynamics and have implications for investment decision-making and risk management strategies in sustainable finance. [ABSTRACT FROM AUTHOR]

Green bonds have developed rapidly, over a short period, in China's capital market, making it the world's largest green bond market. However, there is little empirical literature on China's green bond market growth drivers. This paper uses structural equation models to explain the driving factors and mechanism of the top-down development model of China's green bond market. The findings indicate that the local economy and environmental governance impacts growth more in the green bond market, followed by the institutional environment. In contrast, policy support impacts were small and statistically insignificant. Meanwhile, the effects of the local economy and environmental governance are direct, and the institutional environment indirectly promotes economic development. These results suggest that the local economy and institutional and environmental governance are the main driving factors for China's green bond market's rapid development and the reasons for unbalanced regional distribution. Overall, the findings have practical implications for further promoting the coordinated development of the green bond market and building a green financial system. [Display omitted] • This paper attempts to explain the driving factor of the top-down development model of China's green bond market using SEM. • Found that the local economy and environmental governance have stronger impacts on growth in the green bond market. • Local economy and environmental governance effects are direct, and institutional environment has an indirect impact on GVOL. • Suggest that the local economy, and environmental governance are the main driving factors for the China's green bond market. [ABSTRACT FROM AUTHOR]

This paper explores the pricing implications of green bonds in the Chinese corporate bond market. We document a large greenium in the Chinese green bond market, whereby green bonds are issued at lower offering yield spreads in the primary market and traded at lower yields in the secondary market. The magnitude of the Chinese greenium is substantially greater than other international green bond markets. Exploring the underlying mechanisms, we document convincing evidence that mitigation of information asymmetry and exposure to salient environmental stimuli such as air pollution are plausible explanations of the greenium. • Green certification has pricing implications in the Chinese corporate bond market. • This study documents a greenium in the Chinese bond market. • Green bonds are issued at lower offering yield spreads in the primary market. • Green bonds are traded at lower yields in the secondary market. • The Chinese greenium is greater than other international green bond markets. [ABSTRACT FROM AUTHOR]

This paper explores the pricing of green bonds in the Italian primary and secondary market and their implications for sustainability by investigating the effect that a green label has on a bond's spread through propensity score matching. From a sample of 420 fixed-rate, euro-denominated bonds priced at on the euro mid-swap from 2014 to the first half of 2021, bonds with a green label are matched with conventional bonds, to assess whether there is a significant difference in spreads between them. The results on the primary market show that green bonds' issuance spread is, on average, 35 to 40 basis points lower than that of comparable conventional bonds at a highly significance level. The spread discount seems to persist regardless of the issuer's sector, even with a difference in the magnitude, being remarkably higher for corporates. On the secondary market, the estimation results confirm the discount impact of the green label on the bonds' market spread, even if this impact is lower than at the issuance. This study aims at giving better coverage of the advantages green bonds are able to generate also in a relatively small and illiquid financial markets. Furthermore, we show that green bonds are effective instruments for issuers to achieve a lower cost of debt to finance green projects and for investors to support the transition to a greener and more sustainable economy. • Green bonds' issuance spread is, 35 to 40 basis points lower than that of comparable conventional bonds. • The spread discount seems to persist regardless of the issuer's market sector. • On the secondary market, the estimation results confirm the discount impact of the green label. • Discount is more significant for corporate issuers than financial issuers. • The discount impact is higher in the primary than in the secondary market. [ABSTRACT FROM AUTHOR]

Transition to a low-carbon economy to achieve the Paris Agreement goal requires substantial investments. The green bond market shows good potential to help mobilize financial sources towards sustainable investments. In this paper, we compare the uptake of green bonds in Norway and Sweden from 2013 till 2019, with the aim to understand what drives the green bond market. Our study is one of the first comparative analyses specifically designed to explain differences in green bond uptake between two similar financial markets. The analysis can help us to identify factors that are transferable to other countries and that therefore can be important for facilitating the growth of green bonds in different markets. Data shows that there has been a faster growth in issuances in Sweden than Norway, and especially for the corporate sector and municipalities. When interviewing experienced green bond market participants in Norway and Sweden, we find that likely explanations are a business culture and financial institutions more focused on sustainability in Sweden, as well as a larger and more diversified corporate sector. In Norway, green bonds uptake may have been hampered by competition with high yield investments in oil & gas and shipping, a 'green' energy sector that considers green bonds to be superfluous, and many municipalities that are too small for green bond issuance. The experience from Sweden indicates that other countries wanting to facilitate uptake of green bonds should emphasize leadership on sustainability, collaboration between green bond issuers and investors, and active communication, high visibility, and thorough disclosure of sustainable finance activities. • Both Norway and Sweden are pioneers on green bonds, but the market has grown faster in Sweden. • Business culture and financial institutions are more focused on sustainability in Sweden. • Sweden has a larger and more diversified corporate sector. • Leadership on sustainability and issuer-investor collaboration will facilitate green bonds. • Active communication and high visibility of green bonds activities will stimulate the market. [ABSTRACT FROM AUTHOR]

While clean energy assets have become new investment vehicles for market participants, their potential for diversification of traditional investments has not been fully explored in previous studies. To fill this void, this paper investigates whether diversifying into clean energy stocks or green bonds could reduce portfolio downside risk for investors holding dirty energy stocks or international equity indices. Specifically, the risks of equity portfolios are compared before and after they are blended with clean energy assets. The incremental impact on the portfolio risk profile is evaluated through variable weightings for clean energy assets. The persistence of diversification effects is then explored by changing the assessment period. Results show that both green bonds and clean energy stocks provide risk diversification benefits for investors with dirty energy stocks. However, green bonds reduce risk while clean energy stocks generally increase the risk of the international equity index portfolio. Further analysis indicates the robustness of the results for the recent COVID-19 period. The findings broaden the limited understanding of the risk reduction capacity of clean energy assets to conventional equities and provide useful implications for investors seeking to decarbonize their equities and portfolio managers designing optimal portfolios to hedge against downside risks. [Display omitted] • Risk reduction abilities of clean energy assets for traditional equity are examined. • Green bonds and clean energy stocks reduce the downside risk of dirty energy stocks. • Green bonds are a safe haven for international equity indices. • Clean energy stocks could increase the risks of international equity indices. [ABSTRACT FROM AUTHOR]