Market‐Based and Financial Instruments for Advancing Climate‐Resilient Land Management

ABSTRACT Climate change is a potent driver of land degradation, intensifying soil erosion and nutrient depletion, underscoring the urgent need for the adoption of Sustainable Land Management (SLM) practices. However, while the biophysical techniques for SLM are well established, a critical gap remains in understanding the financial and institutional frameworks required to scale these adaptation strategies. Existing literature often focuses on theoretical proposals or small‐scale community engagement, lacking empirical evidence on how macro‐level financial policies influence micro‐level land‐use behavior. This study addresses this gap by evaluating the efficacy of market‐based financial instruments, specifically the 2017 Green Finance Pilot Zone policy, in driving the transition toward climate‐resilient land management. Conceptualizing green finance as a strategic management intervention, this research utilizes a balanced panel dataset of 31 provinces from 2015 to 2023, sourced from official national statistics. We employ a quasi‐experimental Two‐Way Fixed Effects (TWFE) model to isolate the causal impact of green finance policies on fertilizer intensity, a robust proxy for chemical land degradation pressure. The empirical results demonstrate that the implementation of market‐based financial instruments led to a statistically significant reduction in fertilizer intensity by approximately 2.51 units in pilot zones compared to non‐pilot regions. Furthermore, the analysis provides novel evidence of Green Decoupling, where pilot zones successfully maintained economic growth (GDP) while curbing environmental stressors. The study further explores the socioeconomic impacts of these instruments, revealing that their effectiveness is moderated by regional economic development and population density. These findings suggest that cross‐sectoral policy frameworks that align the financial sector's incentives with agricultural land management are essential for overcoming barriers to adaptation. We conclude that technological innovations in monitoring and market‐based incentives are not merely supplementary but are foundational for enforcing climate resilience. This paper offers actionable insights for policymakers seeking to design financial instruments that mitigate the off‐site consequences of land degradation while ensuring economic viability.