Green bond market dynamics: a comparative study exploring key drivers, and performance across developed and developing markets

Abstract

This study examines the drivers of green bond markets in both developed and emerging economies, focusing particularly on the United States, China, the Netherlands, Nigeria, and Kenya. It employs a comparative research design and uses panel data analysis to examine the effects of GDP, interest rate, ESG, and stock market capitalization on the volume of green bond issuance (GBIV). To address the impact of ESG-related effects, the research sorts ESG indicators into three groups: ESG Emissions, which quantify overall environmental emissions; ESG Indices, which score overall sustainability performance; and ESG Percentage Metrics, which convey the relative realization of ESG targets against bases. The results indicate that ESG Indices and GDP are correlated with the evolution of the green bond market, with more developed economies experiencing higher issuance volumes compared to their developing countries. ESG Percentage Metrics, however, have a negative relationship with GBIV, indicating that countries with higher relative ESG performance may have less dependence on green bonds for financing sustainability. It was also established that increase in interest rates is a negative driver of GBIV, especially within developing economies.