Khóa luận tốt nghiệp: Impact of green bond on renewable energy transition

Green bonds are financial instruments used to finance environmentallyfriendly projects, including renewable energy.. The issuance of green bonds has increasedsignificantly in the past de

VIETNAM NATIONAL UNIVERSITYUNIVERSITY OF ECONOMICS AND BUSINESS

FACULTY OF FINANCE AND BANKING

GRADUATION THESIS IMPACT OF GREEN BOND ON RENEWABLE ENERGY TRANSITION

Ha Noi, March 2023

VIETNAM NATIONAL UNIVERSITYUNIVERSITY OF ECONOMICS AND BUSINESS

FACULTY OF FINANCE AND BANKING

Supervisor: MSc Luu Hanh Nguyen Student: Pham Thi Tra Anh

Class: QH2019E TCNH CLC 4

ID Code: 19050613

I hereby declare that this thesis is my own work Survey data, calculations and result

in the thesis are truthful and have never been published by anyone in any other work andeffort as well that it has not been submitted anywhere Where other sources of informationhave been used, they have been acknowledged The reference to source material has beenmade citing and referencing in accordance with the faculty’s regulations

Supervisor’s Approval Student Hanoi, March 2023

Student

Pham Thi Tra Anh

Besides, I also would like to show our respect and thankfulness to the all University ofEconomics and Business lecturers who have guided and passed on to me from the first days

of entering the university The knowledge acquired during the study process is not only thefoundation for the thesis research process but also a valuable asset for me to step firmly andconfidently into life Last but not least, I would like to extend my sincere thanks from thebottom of our hearts to family, and friends for treasured memories and loving supportthroughout my education and graduation It would be challenging to complete the researchwithout their motivation and inspiration

Wishing you all the best!

The authors of this thesis

TABLE OF CONTENTS

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CHAPTER 2: LITERATURE REVIEW sen Hee 10

2.1 Conceptual frame€WOFFK - « x+x+kkE+ xe RE HH H111 1111111111111 11.11111111 1111k 10

2.1.1 Green DON eseessessssesseesssesstessessseesseesseesseesstessseeseeeseessseesseessessneesseesstesaesaesseeeaeeaseesseesneesseesaeny 10

2.1.2 Renewable Energy 'TraInSÏtÏOT -« s-k HH nà Hà HH Hà Hàng Hàn 11

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CHAPTER 3: RESEARCH METHODOLOGY cccsssssssesserseneessseesesrenenessorseeneesneersenenesensneneneneneees 24

3.1 Research oan ẽ 243.2 Research Model sseesssesssssssssessssesssecsseeseesssesseeeseessneessessnessseesseesseessersseaseessessseesueesseesseesseesanesseesaseensss 243.3 Descriptive of main variablÌ@S -« «sex HH1 111.1111111 24

CHAPTER 4: RESULTS AND DISCUSSION ccsssssssssesssserseesesenseesereneneneorsnenecsneneoeareneneneneerenenenenes 26

4.1 Descriptive StatÏSẨÏCS che 26

4.2 Baseline r@SuÏtS c-cckchH HH HH HH TH TH HH HH HH HH HH 274.3 RODUStNESS t©SẲS HH HH Hà Hà HH HH HH HH H111 1p 29

CHAPTER 5: CONCLUSION -< 55555 s‡sSsssEEHHH HH HH 32REFERENCES càng nhhghHRHREEEEEEEEEEEEEEEEEEEEEERERERERSESESESESESESESESEEESESEEE 33

LIST OF TABLE

Table 3 1: Description of the variables included in the regression modeÌs - 25

Table 4 1: Descriptive StatÏSEÍCS HH HH HH TH KH HH KH HT KH KH HH 26Table 4 2: Correlation IAETÏX - ác tt tt nhàn Hàng HH Hà Hà tp phế tre nhikt 27Table 4 3: Reliability check table of baseline regression modelL -e esecxeerxeeerrxee 29Table 4 4: RODUStNESS cố 31

The impact of green bonds on renewable energy transition has been a topic of interest

in recent years Green bonds are financial instruments used to finance environmentallyfriendly projects, including renewable energy The issuance of green bonds has increasedsignificantly in the past decade, with many investors seeking to invest in sustainable projects.The aim of this paper is to review the literature on the impact of green bonds on renewable

energy transition To determine this impact, the study collected data from 67 countries

around the world on green bond issuance This study uses a regression model and panel dataanalysis The results show that green bonds have a positive impact on the renewable energytransition, as they provide a new source of funding for renewable energy projects Greenbonds can also reduce the cost of capital for renewable energy projects and provide a newavenue for investors to invest in sustainable projects The evidence suggests that theapplication of green bonds can increase the deployment of renewable energy projects andcontribute to the decarbonization of the energy sector Overall, this paper highlights theimpact of green bonds on the renewable energy transition

Keyword: Green bond, Renewable Energy, Sustainable development

CHAPTER 1: INTRODUCTION

1.1 Urgency of the topic

Continuous climatic and environmental shocks over the past ten years have forcedour society to move faster toward more sustainable growth and, ultimately, a green economywith no pollution As the globe strives to solve these pressing climate change and cleanenergy concerns while simultaneously recovering from the ongoing COVID-19 epidemic,

sustainable finance is surging in favor across global markets to financially support the green

shift (Vu, 2021)

The European Green Deal's policy goals and the EU's international obligations toclimate and sustainability goals both depend heavily on sustainable finance The EuropeanGreen Deal is a comprehensive plan proposed by the European Commission to make theEuropean Union climate-neutral by 2050 and transform it into a sustainable, green economy

To achieve these goals, the plan recognizes the need for significant investments in sustainableinitiatives and the mobilization of private finance to supplement public funding.As asupplement to state funding, it does this through directing private investment toward theshift to a resource-efficient, equitable, climate-neutral, and resilient economy Investing in aresilient economy and a long-term recovery from the COVID-19 pandemic's effects will besupported by sustainable funding, it will be ensured The European Union has been in theforefront of initiatives to create a financial system that promotes sustainable growth and hasexpressed its strong support for the transition to a low-carbon, more resource-efficient, andsustainable economy (Elkerbout et al., 2020)

Sustainable finance plays a crucial role in supporting the transition to a efficient, equitable, climate-neutral, and resilient economy It involves directing privateinvestment toward sustainable initiatives, such as renewable energy, sustainableinfrastructure, and green technologies This can help create new economic opportunities,support job creation, and drive innovation while contributing to the overall transition to asustainable economy The European Union has been at the forefront of initiatives to create afinancial system that promotes sustainable growth and has expressed strong support for thetransition to a low-carbon, resource-efficient, and sustainable economy This includes

resource-measures to integrate environmental, social, and governance (ESG) factors into financial

decision-making and promote sustainable investments

The lack of finance is one of the biggest obstacles to solving environmental and climateproblems The scale of the challenge is enormous and requires significant investment in newtechnologies, infrastructure, and programs This has led to an increasing interest in green

bonds as a means of meeting this financial need Green bonds are a type of bond that is issued

specifically to finance environmentally friendly projects The proceeds from the bond sale areearmarked for these projects, which can include renewable energy, energy efficiency, andsustainable agriculture, among others By investing in green bonds, investors can support thetransition to a more sustainable economy while also generating returns on their investments.Green bonds have the potential to unlock significant amounts of capital and provide a much-needed boost to the efforts to address climate change and other environmental issues

Green bonds are defined as any type of bonds where “the proceeds will be exclusively

used to finance or re-finance, in part or in full, new and/or existing eligible green projects”

(ICMA, 2017: 2f), that is, environmentally- or climate-friendly projects, such as renewableenergy, green buildings, clean transportation, sustainable waste man agement, sustainableland use, biodiversity and clean water With green bonds, the issuer obtains the capital tofinance green projects, while the investors receive fixed income in the form of interest Atmaturity, the principal is repaid, unless the issuer goes bankrupt Green bonds in this wayare the same as any corporate bond, but they are labeled “green” because the issuer pledges

to use the proceeds for environmentally friendly or climate-focused projects in accordance

with sustainability standards In January 2014, the International Capital Markets Association

published the Green Bond Principles to establish rules for a bond to be labeled as green Thedistinction between labeled and unlabeled bonds laid out in the Green Bond Principles pavesthe way for the extraordinary growth in the issuance of green bonds from 3bn USD in 2012

to 81bn USD in 2016 (Reboredo, 2018) The explosive growth of the green bond market hasled Morgan Stanley to describe it as “green bond boom” (Morgan, 2017) The characteristics

of green bonds are not just limited to the “green” aspect which is directly linked to promoting

and implementing green development initiatives, but also include the government's

responsibility to accelerate climate actions and create geopolitical situations that arefavorable to green deals As emphasized by Agliardi and Agliardi (2019), the development ofgreen bonds depends on building investor confidence in the green bond market andenhancing the understanding of green bonds' characteristics, which are closely associatedwith regulatory changes and green policies

In Kidney & Oliver's (2020) research, green bond is like a regular bond but is issued

to support investments, aimed at reducing environmental impacts such as reducing climate

change or increasing energy efficiency (Falsen and Johansson, 2015) According to G20 GreenFinance (2016), green bonds are classified as distinguished from ordinary bonds by the

commitment to use the mobilized capital to finance or refinance green projects or businesses.Green bonds are issued by entities such as the Government, local authorities, or the privatesector such as banks and businesses to raise capital for projects associated with the

environment.

Green bonds, according to Bloomberg, provide financial assurance for initiatives thataim to reduce the effects of greenhouse gas (GHG) emissions The money raised from greenbonds will be used to fund cutting-edge initiatives that will lessen the negative consequences

of global industrialisation The world needs to employ cash for its most beneficial purposes

For society to develop and the quality of life to improve, resources must be used effectively.The financial sector must comprehend how the SDGs alter the dynamics of the globaleconomy, and this calls for the development of novel financial instruments to raise money forgreen initiatives (Gianfrate and Peri, 2019) The utilization of green bonds revenues for greentechnology is theoretical These technologies are frequently referred to as green initiatives.These initiatives are mostly in their infancy and are not yet financially feasible (Sachs et al.,2019) Green bonds are distinct from other traditional (brown) bonds in this way According

to Taghizadeh-Hesary and Yoshino (2020), the latter is frequently employed to fund

conventional initiatives that are more financially feasible The return on investments in greeninitiatives is less definite than it is for standard projects, which makes them riskier As aresult, there is a large disparity between the funding requirements and the financing optionsfor green projects Green bonds are tools that can assist bridge the financial gap betweendemand and supply and slow down environmental damage

According to the European Commission (2016), green bonds concentrate mainly onfinance waste and pollution projects (5.6%), low-carbon transportation projects (13.4%),sustainable water projects (9.3%), and renewable energy projects (45.8% of the bonds thatwere issued in 2015) Private sector (business) enterprises, public sector (national,municipal, or state entities), and international organizations (such the World Bank, theEuropean Investment Bank, etc.) all issue green bonds The overwhelming majority of greenbond issuances (approximately 80%) are conducted in USD and EUR, with a 5-10 year

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average development Furthermore to having become growing in popularity amonginvestors who care about the environment, green bonds are also becoming more and morepopular among investors who are becoming aware of the potential importance of the impact

of climate change on governmental policies and the risk associated with it for businesses The

Paris Climate Agreement of 2015 saw many nations agree to a global commitment totransition to a climate-resilient economy As a result, the market for green bonds isanticipated to flourish by drawing interest from a diverse range of issuers and investors,including mutual funds, pension funds, insurance companies, small and medium-sizedinstitutions, and even individual investors Not unexpectedly, stock exchanges have come upwith concentrated green bond segments to support this market, include those in Italy, Oslo,London, Mexico, Luxembourg, Shanghai, and Shenzhen In order to scale up the financialresources needed to green the global economy, those market sectors will undoubtedly helpimprove the liquidity, transparency, and reputation of green bonds

To accomplish the goal of sustainable development, green bonds must be successfullypromoted The income from green bonds enables companies to fund environmentallyfriendly initiatives and promote long-term sustainable growth In the recent past, greenbonds have become a more well-liked fixed-income security People's differing definitions ofthis financial security are the issue with the green bond A green bond is defined as "any bondinstrument where the proceeds will be exclusively applied to finance or refinance, in part or

in full, new and/or existing eligible green projects" by Green Bond Principles (Green BondPrinciples, 2018)

According to Ehlers and Pecker (2017), favourable market conditions are essential forthe growing green bond market Both the issuer and the investors should be happy with theprofits and safety of such instruments Otherwise, challenges will come up with this financialinstrument in the foreseeable future Green bond issuance increased in 2019 with bonds of

US$ 257.7 billion issued in a single year (Climate Bond Initiative, 2019) In order to finance

the energy project, the European Investment Bank (EIB) issued the first green bond in 2007

A French energy producing company issues the first corporate bond in 2013 to raise money

for the cutting-edge, environmentally beneficial project By encouraging funding for greenprojects, China is growing its green bond market in Asia The literature is always changing as

a result of the researchers’ studies of many aspects influencing market forces' responses tothe present bond market and its expansion

Following the global financial crisis of 2007-2009, the majority of nations realizedhow crucial it was for the financial system to support sustainable development of theeconomy With the help of a new sustainable financial market, money may be raised for an

eco-friendly economy and distributed internationally for vital investment needs In order to

reduce global emissions by half by 2050, the International Energy Organization (IEA)estimates that the world would require 46 trillion USD, or one trillion USD year In thatregard, green bonds are viewed as a cutting-edge method of attracting money as well as apractical remedy that has the potential to raise hundreds of billions of dollars annually forthe growth of a sustainable and green economy.The reality of recent years demonstrates thatthe issuance of green bonds has been a global trend, involving major international financialinstitutions like the World Bank (WB), the International Monetary Fund and World Bank

(IMF), Asian Development Bank (ADB), etc It is thought to be an important channel for

capital mobilization to meet the capital requirements for sustainable growth With anemphasis on companies and fields associated to pullbacks and adjustments, green bondshave been issued in more than 30 nations as of right now, with the US, Canada, France, the

UK, and China being important markets Transportation, energy, recycling, building, watertreatment, and waste management all include adapting to climate change

This research focuses on comprehending the effect of green bonds on the shift torenewable energy as a result of these factors The creation of green bonds and the use of

renewable energy for sustainable economic growth are therefore encouraged The study is

based on a data table that includes information on green bonds, renewable energy, GDPgrowth, population growth, labor force, urban population, and openness for more than 60nations worldwide between 2008 and 2021, with the data divided into categories depending

on reconfiguration needs

1.2 Research Objectives

The purpose of this research is to concentrate on the following major points: First, abrief explanation of green bonds, energy generated from renewable sources, and thesignificance for environmentally friendly finance will be given Second, the researchinvestigation is going to investigate at how green bonds are affecting the transformation to

energy generated from renewable sources The research paper are going to conclude with an

analysis of the model's test findings and suggestions regarding how to establish green bondsfor renewable energy projects in general.

This research will certainly responded to main questions:

(1) What do green bonds impact the renewable energy transition?

1.3 Research Scopes

The research provide updates is based on a data table which includes statistical

analysis for more than 60 countries worldwide between 2008 and 2021 on green bonds,

renewable energy, GDP growth, population growth, labor force, urban population, opennessand analyzed by regression model This research accomplished analytical data from the WDIdatabase The European Investment Bank (EIB) launched the first green bonds in 2007, andthe International Bank for Reconstruction and Development (IBRD) subsequently followedcorrespond with in 2008 (Coston et al., 2014; Stoian & Iorgulescu, 2019) The analysis usesdata from 2008 through 2021 since the WDI data has not yet been updated to 2023 However,because developed and underdeveloped nations will differ in terms of population, economy,etc., the data gathered is not representative This will have an impact on the issuance of greenbonds, the usage of renewable energy, and other nations’ governments’ policies for thedevelopment of green bonds As a result, this study's conclusions still fall behind of beingtruly comprehensive, limited in scope, and time-bound

1.4 Research methodology

The research paper uses regression analysis along with a number of tests, such assummary statistics, correlation matrices, baseline tests, robustness tests, and extra tests toinvestigate the effect of green bonds on the shift to renewable energy sources The researchused the FEM fixed effect method to evaluate the impact of green bonds on the renewableenergy transition The research analyzes how green bonds affect the worldwide transition torenewable energy More than 60 countries’ data were used in the study, which covered theperiod from 2008 through 2021 These are the nations that are interested in and issue greenbonds with an estimated time for achieving sustainable financial growth

1.5 Contribution of research

The research commences by analyzing and which describes the ideas of green bondsand renewable energy To expand the range of comparisons across variables, the study then

examines the effect of green bonds on the conversion of renewable energy using controlvariables The results of this research contributes in predicting how the shift to renewable

energy will be impacted by the rise or fall of green bonds At the same time, research advancesour knowledge of renewable energy conversion and green bonds The post will also offer

suggestions for creating green bonds for renewable energy projects Analyzing the impactthat results serves as a source of information for debate and uncovering novel insights whencompared to earlier investigations

1.6 Structure of the study

The research paper's organization is divided as follows: Chapter two examines andsummarizes previous research, including their theoretical framework, conceptualfoundations, and proposed green bond and transformed hypotheses, exchange of renewableenergy The article next goes into the research through research design and researchmethodologies in the third chapter before providing experimental in nature results inchapter four We conclude by providing recommendations and consequences for the subjectdissertation in chapter five

CHAPTER 2: LITERATURE REVIEW

2.1 Conceptual framework

2.1.1 Green bond

a) Definition of Green Bond

The conceptual framework of “green bonds" is still up for dispute, especially in light ofthe expanding conversation about climate change and the accountability of the investorsengaged Currently, there are several green bond ideas being put out

According to Wood et al., 2011, there are no distinct qualities or standards for a greenbond Investors do not have any special requirements for green bonds, according to theResponsible Investment Initiative (Initiative for Responsible Investment) of HarvardUniversity's interview findings Investors select green initiatives primarily for their intendedoutcomes, such as their impact on conservation, carbon reduction, and sustainableagricultural growth The simplest method to urge investors to prioritize issues connected toclimate change, environmental protection, or boosting funding for a low-carbon economy is

to identify bonds as "green"

In their larger definition, Della et al, 2011 define green bonds as fixed incomesecurities issued by governments, multinational banks, or economic corporations issued to

generate the money required for a certain project that helps to reduce climate effect and

carbon footprint

b) Classifications of Green Bond

The 2016 Green Bond Rules precisely define four different forms of green bonds,including Green Bonds with Recourse, Bonds for green projects, and bonds with no recourse

a green bond supported by green resources First, Green bonds with recourse have a right ofaction against the issuer The issuer will combine its bond issuance and investmentoperations for qualified projects, and all proceeds from this green bond issue will be funded

to one sub-account before being moved to another portfolio or being internally monitored.The whole amount of this green bond issue's proceeds will be credited to a single sub-account, transferred to a different portfolio, or tracked internally by the issuer in accordancewith a procedure that combines all of the issuer's bond applying and investment operationsfor funding qualified projects

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The second type of bond is recourse-free green bonds are bonds issued by the issuerthat are not subject to default; rather, the debt obligations associated with the bond issuancewill be recourse based on cash flows from fixed revenues like taxes, fees, and other similar

sources The proceeds from the bond issuance may be used to fund green projects that are

related to or unrelated to the purpose for which it was issued The whole amount of theproceeds from this green bond issuance will be credited to a sub-account before beingaccounted for in an investment portfolio that is under the issuer's internal supervision Thesebonds have characteristics that are comparable to those of regular bonds but are more

"green" and provide an advantage for the environment

The third type green project bonds: are issued in order to generate money for one ormore green projects Investors who purchase these bonds do so with the understanding that

they will directly face the risks associated with the project, either with or without recourse

to the issuer

Finally, a green bond secured by green assets: is a particular kind of bond that is issuedusing collateral assets that are assets created by green initiatives, including covered bondsand secured securities asset-backed securities (ABS) offered by specialized debt tradingfirms as well as other structured securities Cash flows from Green assets created from Greencapital are typically the initial source of debt repayment

2.1.2 Renewable Energy Transition

a) Definition of Renewable Energy

Renewable energy, sometimes referred to as clean energy or green energy, describesenergy sources that are inherently renewable and have less of an impact on the environmentthan conventional energy sources like fossil fuels (coal, oil, natural gas, etc.) The usage ofrenewable energy has been thoroughly explored in recent years, and several studies havelooked at how it affects the economic, environmental, social, and human health elements of

society.

b) Classifications of Renewable Energy

There are generally six basic categories of clean and renewable energy sources:biomass, geothermal, hydro, tidal, wind, and solar

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Solar Energy: Solar energy is one of the most versatile types of renewable energy.According to the United States National Renewable Energy Laboratory (NREL), for everyhour that the Sun shines on Earth, there is enough energy to power the entire planet for a year.

Wind Energy: Wind energy and tidal energy can both be harnessed through turbines

Understanding how wind energy is harnessed is relatively simple if one thinks of it as a “fan

in reverse” - meaning, rather than using electricity to produce wind, the way a fan does, windturbines rely on this natural, auto-replenishing resource to produce electricity Technicallywind is a sub-type of solar energy, created when three events converge The United StatesDepartment of Energy explains these events in concise terms: “the sun unevenly hitting theatmosphere, irregularities of the earth’s surface, and the rotation of the earth.”

Tidal Energy: Tidal energy is still in its infancy compared to other renewable energy

sources and is solely dependent on the gravitational pull of the moon and sun Even thoughtidal energy is one of the less frequent renewable energy sources, its benefits have long beenunderstood; in fact, over 1,000 years ago, Europeans were already using the force of watermovement to power grain mills Tidal energy has the problem that some methods ofharnessing it, such as tidal barrages, may be harmful to species

Hydropower: Hydropower, which is used extensively worldwide, includes turning theforce of water into energy or machine power The key to producing this power is pressure;

often, fast-moving river currents or water coming from a high point are used to generatehydropower Hydropower, especially in this latter alternative, is not without its drawbacks;

one frequent concern is the eviction of locals from areas near hydropower plant buildingsites, as well as the dangers of reservoir banks collapsing, particularly during periods of

heavy precipitation Therefore, the majority of "mega-dams" are often not regarded as viable

Biomass: Another source of renewable energy is biomass, however whether itqualifies as such depends largely on the situations in which it is utilized Organic, once-livingmaterials - most typically crops and plants, but sometimes occasionally animals, driftwood,

or waste wood - are the basic definition of biomass

Geothermal Energy: Geothermal energy is heat that rises from the earth's interior and

is obtained using a range of methods and technology For the purpose of producing energy,geothermal plants use steam from reservoirs below the surface of the earth It is typical forgeothermal facilities to have low emissions if the water and steam they utilize are returnedback into the reservoir Geothermal energy has enormous potential and may be used to

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generate electricity as well as heat water and air In Iceland, for example, geothermal energysupplies more than 90% of the country's heating needs, according to the International

Renewable Energy Agency That it is not weather-dependent is a key benefit of thisrenewable energy source

2.2 Empirical research

2.2.1 Green bond issuance

Green bonds are a type of bond designed to finance projects with positiveenvironmental or climate-related benefits While the market for green bonds has grown

rapidly in recent years, with a record issuance of $269.5 billion in 2021, the first significant

surge in green bond issuances began around 2013 At that time, several major organizations,including the World Bank, began to issue green bonds, which helped to increase awarenessand interest in the market Since then, the green bond market has grown significantly, with awide range of issuers, including governments, municipalities, corporations, and financialinstitutions, entering the market

The market for green bonds, a type of financial instrument dedicated toenvironmental sustainability, is undergoing rapid growth In 2020, the total issuance in the

global green bond market reached 293.2 billion dollars, and the cumulative issuanceexceeded 1 trillion dollars (CBI, 2017) Environmental, social, and governance (ESG) assets

exhibit good market performance in response to major shocks such as financial crises,climate risks, and the COVID-19 pandemic (Lins et al., 2017; Krueger et al., 2020;Haciomeroglu et al., 2021) The issuance of green bonds indicates the occurrence ofenvironmentally friendly and sustainable development to the outside world (Flammer,2021), and investors seek green bonds that meet ESG investment criteria (Febi et al., 2018)

Green bonds are a nascent fixed income asset class that are issued by governments,corporations and other institutions used to finance environmental and climate-friendlyprojects, such as renewable energy, recycling and green infrastructure The definition of

‘green’ across institutions is very different For example, the green bond definitions aredifferent in Bloomberg, Climate Bonds Initiative (CBI) and Wang et al (2020) compose acomprehensive dataset to depict growing trends within the green bond market using greenbonds data from multiple sources According to Wang et al (2020) and as described above,the green bond market took off in 2013 but has experienced significant growth since then

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Further, Wang et al (2020) break down the green bond amounts issued in 2018 by countryand show that China, Sweden, France and Japan accounted for the largest proportions ofgreen bond issuances.

Green bonds are a type of bond that is used to fund environmentally sustainable

projects The proceeds from the issuance of green bonds are used exclusively forenvironmental projects, such as renewable energy, energy efficiency, and sustainabletransportation The market for green bonds has grown rapidly in recent years, with a record

$269.5 billion issued in 2021 (Climate Bonds Initiative, 2022) Studies have found that green

bonds have the potential to mobilize significant amounts of capital for environmentallysustainable projects, which can contribute to climate action and the transition to a low-carbon economy (Gao et al., 2020; He et al., 2021) The authors found that green bonds haveraised over $500 billion since 2007, with the majority of applying coming from developed countries.For example, studies indicate that the issuance of green bonds can encourage producers’ willingness to engage with low-carbon technologies such as bioenergyproduction, while Wang

et al (2021) show that the value of a firm issuing green bonds does increase Tang and Zhang(2016) also point out that if firms issue green bonds, the firms’ liquidity im provessignificantly and benefits shareholders

According to Weber and Feltmate (2016), bonds may be used to fund or refinance awide range of initiatives and tasks, including constructing infrastructure, operating powerplants, and maintaining ongoing operations In order to obtain money from investors for a

project that supports a low-carbon, climate-resilient economy, a government agency, a

multilateral organization, or a company may issue green bonds (Inderst et al., 2012).According to Syzdykov and Masse (2019), green bonds are fixed-income products with all ofthe revenues going directly to initiatives that benefit the environment Green bonds arebonds that generate earnings that go towards investing in environmentally beneficialinitiatives such renewable energy, water and energy environmental preservation, bioenergy,and low-carbon transportation (Mercer, 2015; Campiglio, 2016) In addition to all thefinancial job responsibilities, they also include the maintained benefits to the environment ofthe green bond issuer (Bartels et al., 2016)

Moreover, research has shown that green bonds can help to attract new investors tothe environmental project market For example, Roca et al (2020) found that the issuance ofgreen bonds can help to attract socially responsible investors who are interested in investing

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in projects with positive environmental impacts Research has also shown that green bondscan provide financial benefits to issuers, including lower financing costs and improved access

to capital markets (Gao et al., 2020; Inderst et al., 2019) This is because green bonds are

often seen as more attractive to investors who are looking for socially responsible

investments In addition, empirical research has indicated that green bonds can have apositive impact on environmental and social outcomes For instance, studies have shown thatgreen bond-funded projects have led to reductions in greenhouse gas emissions, increasedaccess to renewable energy, and improved energy efficiency (Liu et al., 2021; Roca et al., 2020)

For promoting sustainable development, financing is important, but Bhutta et al.(2022) note that it might be challenging to get financing for environmentally beneficial

initiatives One of the financial tools used to finance such initiatives is the use of green bonds,which give money for green projects The topic of sustainable development with a focus on

environmental concern is of interest for academicians and practitioners to achieve theobjective of sustainable development goals (SDG) under the United Nations Development

Program (UNDP) International Energy Agency (IEA) estimates that approximately $55

trillion is required to finance climate-friendly projects by 2035 to achieve the goal of limitingthe increase in the temperature to a maximum of 2 °C (IEA, 2014) Green financialinstruments include green bonds are said to help this relationship since they encouragepublic-private collaborations for sustainable development, according to Nassani et al., 2020and Yoshino et al., 2018

Green bonds have been described as "any type of bond instrument where the proceedswill be exclusively applied to finance or re-finance, in part or in full, new and/or existingeligible green projects" (International Capital Market Association [ICMA], 2018), according

to the GBP, a set of voluntary process guidelines intended for the market's widespread use.According to Baker et al (2018), green bonds are fixed-income financial instruments whoseearnings are used to invest in projects that help the environment or the climate, such asrenewable energy, clean transportation, sustainable agriculture, energy efficiency, andbiodiversity preservation While there doesn't appear to an internationally recognizedmeaning of "green" or what a "green bond" is, organizations have offered a variety ofcertifications that adhere to specific definitions of the green label, including various "shades"

of green As a result, various standards have begun to gain traction in the green bond market(Talbot, 2017; Ehlers and Packer, 2017)

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2.2.2 Impact of green bonds

According to several research (Deng and Lu, 2017; Flammer, 2021, 2020; Sebastiani,2019; Zhou and Cui, 2019), green bonds have a beneficial impact on the environmental andsocial responsibility (CSR) performance of businesses According to Deng and Lu (2017), theintroduction of green financing policies is a practical way to boost environmentalperformance and CSR because it strengthens the regulation of firm-level environmental

pollution They find that green finance intervention strategies have a significant impact on

CSR improvement Green bonds are an effective strategy for climate funding, according toFlammer (2021), who finds that corporate green bonds are successful in raising firms’environmental ratings and reducing their CO2 emissions over the medium and long terms.Sebastiani (2019) finds proof of the success of the instrument in the fact that energy andutility firms enjoy fewer CO2 emissions in relation to the issue of their first green bond Zhouand Cui (2019) claim that green bonds have considerable economic and environmentaladvantages They also claim that green bond issuing boosts corporate social responsibility(CSR) activity

According to Al-Mheiri and Nobanee (2020), the issue of green bonds for the purpose

of financing green projects is crucial to accomplishing this sustainability target because whenfinancial management is done correctly, it may improve environmentally friendly corporateoperations Kim and Sin's research from 2021 supports this Overall, the results suggest thatgreen bonds can enhance environmental performance, but only when they are verified byoutside parties Furthermore, the performance of the economy is unaffected by green bonds.The findings demonstrate that a green bond market that is nevertheless during its infancyand that is still dominated by inadequate governance may be the cause of the dependence ofgreen bonds on external certification Because of this, businesses frequently abuse the risingacceptance of green financing, contributing to the greenwashing issue

Another area of impact is economic growth, where green bonds are seen to provide aboost to the economy Green bonds can support job creation, improve productivity, andincrease income generation, particularly in the renewable energy sector (Pindyck, 2019).Additionally, green bonds have been found to have a positive impact on the financial

performance of firms issuing them (Liu et al., 2020) Green bonds can provide access to cost capital, attract new investors, and increase a company's reputation and brand image

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