Impact of environmental indicators on green bond issuance with the interaction effect of GDP – A PMG-ARDL analysis across developed countries

This study explores the influence of environmental factors on Green Bond (GB) issuance, and analyses how economic growth, represented by GDP, moderates this association across 22 developed economies from 2015 to 2022, utilising the PMG-ARDL model as the primary estimator. The empirical results reveal that renewable energy consumption and environmental expenditure (biodiversity, waste reduction, wastewater management, pollution abatement, and R&D linked to environmental protection) are positively and significantly associated with GB issuance in the long run. While economic growth also significantly influences GBs. Conversely, CO2 emissions negatively impact the long-term growth of GBs. GDP has a diverse long-term moderating effect, augmenting the impact of CO2 emissions and renewable energy usage, while diminishing the effects of environmental spending. The short-term results are weak and heterogeneous, with only a limited number of interaction terms demonstrating significance. To evaluate the robustness of these outcomes, FMOLS and DOLS estimators are utilised, and the findings remain qualitatively consistent across alternative specifications. The findings are robust and provide extensive evidence of robustness and endogeneity to support their reliability and practical importance to issuers, policymakers and market regulators to provide a strong empirical basis for the design of targeted renewable energy and environmental investment policies, to develop sustainable finance frameworks and to encourage effective partnerships between the public and private sectors to assist in the development of the green bond market.