Climate change management strategies in emerging economies: A focus on green bonds

Abstract

Climate change has become a global grand challenge featuring in discussions on international development and sustainability. This has arisen from the reality that the challenges posed by climate change directly impact economic sustainability, human development, and disrupt the interdependence among natural ecosystems supporting life on earth. The challenges also transcend national borders, thereby requiring multi-stakeholder engagements on the effective strategies to manage the adverse effects. Since the early 1990s, the United Nations Framework Convention on Climate Change (UNFCCC) has led the global action on climate change. However, there remains much progress to be achieved regarding the management strategies which have varied across different countries, as well as the funding mechanism for the management strategies especially among emerging economies who are among some of the most at risk of the adverse impact of climate change. These create a problem for governments and organisations, thereby necessitating a study of the management strategies and underlying financing mechanism(s). Adopting Legitimacy Theory as a lens, this research investigates the climate change management strategies in emerging economies from the perspective of green bonds. This was achieved by investigating the factors influencing the size of green bonds issuance, an indication of the level of funding available to finance planned strategies for climate mitigation and adaptation. Distinction was not made between mitigation and adaptation strategies. Both strategies were viewed under the common term, management strategies. To distinguish this research from prior vague uses of the term “emerging economies”, a defining criterion based on commonly accepted measurements of an economy was employed to select three biggest economies of focus. The context of emerging economies provided the opportunity to study the role of green bonds in the achievement of climate objectives in the focal countries. Data on green bond issuances in the countries of interest for the period 2015 to June 2024 inclusive, based on when the instrument was first issued in the selected countries was extracted from the Bloomberg fixed income data base. The analyses were done using STATA to study the direct and indirect relationships among constructs and answer the hypotheses. The analyses involved ordinary least square (OLS) regression models in the first instance, with confirmatory tests using differences-in-difference (DiD) and parallel trends analysis methodologies. The results found that profitability measure, return on assets (ROA), and debt repayment ability measure, leverage (Lev) positively influence green bond issue size. Other measures such as ESG disclosure scores, and industry classification did not positively influence green bond issuance size. However, controlling for variables such as total assets (TA), legal systems origin, use of proceeds, bond maturity, and issuer credit rating, the results showed that the coefficient of determination was stronger for the collective controlling influence of all covariates and individually stronger for bond maturity, especially for long-term maturing bonds. The findings of the research make theoretical contribution as one of the first studies that quantify the factors influencing green bond issuances in emerging economies through the lens of Legitimacy Theory. The findings impact policy on development of the market for green bonds in emerging and other developing countries, as well as direct attention to contribution of emerging economies towards the achievement of global climate change objectives.