The determinants of climate bond issuance in the OECD countries

Abstract

Bonds are one of the most common financial instruments available on the market to finance corporations and municipal projects. Climate bonds and green bonds are financial instruments that can be used to contribute positively and respond to the threat related to climate change. Following the introduction of the Climate Bond Standard (CBS) in December 2010 and the Green Bond Principles (GDP) in 2014, further standards have been developed to categorize and label bonds with an Environmental, Social and Governance label. A gap in the current empirical literature on the determinants of climate bond issuance volume created an opportunity to apply research to this topic. To assess the determinants of climate bond issuance volume, this study employs a fixed effect regression analysis with various robustness checks on a panel dataset. The dataset includes data for the 38 OECD countries with climate bond issue volume of over $1,708 billion and conventional bond issue volume of over $68,759 billion between 2014 and 2021. To the authors’ best knowledge, this is the first study to research the determinants of climate bond issuance in the OECD countries. The Covid-19 pandemic has a positive effect on the issuance of green bonds, social bonds, and sustainability bonds measured against total bond issuance. In contrast, long-term interest rates have a negative effect on green bond issuance as well as the total climate bond issuance. Fiscal balance has a positive effect on the green bond issuance, while market capitalization only has a positive effect on green bonds and the total climate bond issuance when measured against GDP. The results provide useful information on the determinants of climate bond issuance in the OECD countries but also highlight further studies on a global scale.Climate bonds, green bonds, issue volume, EPI, Covid-19, macroeconomic factors.