GOVERNANCE QUALITY AND POLICY FRAMEWORKS IN CERTIFIED GREEN BOND ISSUANCE: PANEL EVIDENCE FROM FIVE EMERGING ECONOMIES (2015–2023)

Abstract

This research seeks to examine the policy and institutional predictors of certified green bonds issuance in five emerging market economies, namely, China, India, Brazil, Thailand, and Mexico, during 2015-2023. Applying a balanced panel data approach of 45 observations, one per year per country, and using count regression, we examine whether the quality of institutional governance and adoption of national green bond framework could be used to explain the number of annual issuances of certified bonds based on information available in Climate Bonds Initiative Database. We show that Poisson regression model overestimates the impact of governance quality on the number of issuances due to the presence of confirmed overdispersion (variance to mean ratio = 2.886) and employ negative binomial regression as the optimal specification. We also detect and account for structural confounding factor related to the framework adoption variable: since all five frameworks in our sample have been adopted during four years and this period was characterized by steady growth of green bonds markets in emerging countries, a simple framework dummy variable acts as a proxy for time variable, not the policy framework itself. Quality of governance comes out as the only consistent variable that predicts issuance, statistically significant for all the models, even the strictest one, whereas adoption of framework lacks any predictive power once linear time trend is accounted for. This clearly points out that institutional capabilities matter more as a foundational basis of certified green bonds in emerging countries than mere existence of policy framework and has important implications for the way development finance institutions and policy makers allocate their resources for promoting green finance.