Conclusions

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2008 to 2017 alone (Tolliver et al., 2019). The findings of this study therefore suggest green bonds to be links that connect NDC targets with the sustainability outcomes urged by the overarching Paris framework.

Regarding practical implications, institutional aspects that underlie capital account openness, regulatory quality, and rule of law are less determinative of green bond market growth than macroeconomic aspects that underlie the size of the economy, the percentage of trade within the economy, and amount of stock market capitalization. As such, countries pursuing

sustainability agendas using green bonds should prioritize bolstering macroeconomic factors conducive to conventional capital market formation. An additional theoretical implication of this is that although environmental concerns integral to sustainable development “in almost every case…have not been sufficiently integrated with economic sectors and decision-making…”

(Sneddon et al., 2006), green bond markets driven by macroeconomic factors stand to link the economy with sustainable development.

One final practical implication involves the potential for NDCs to lower sustainability investment costs by accelerating green bond market growth. At the corporate level, the cost of bond financing is likely lower than equity investments, and lower monitoring costs and dispersed ownership can make fixed income products (e.g. bonds) lower cost alternatives to bank loans (Ng et al., 2016). The degree to which countries enhance their NDCs will affect green bond market growth and thus affect the cost and feasibility of sustainable development.

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infrastructure will be required to bridge these gaps (Peake and Ekins, 2016). Green bond markets are growing precipitously to meet this demand for climate and sustainability investments. The bonds themselves offer issuing firms the opportunity to expand their green investment capacity by attracting both institutional and socially responsible investor (SRI) funding to

environmentally-friendly projects. Considering the expanding role of green bonds as investment vehicles for cleaner production and sustainable outcomes, this study used a sample of $319 billion outstanding in green bond issuances across 49 countries from 2007 to 2017in an exploratory factor analysis (EFA) and structural equation modelling (SEM) to examine the drivers behind green bond issuance volumes.

Following a literature review of green bond market barriers, pricing comparisons of green and conventional bonds, and theoretical and empirically tested capital market drivers,

exploratory factor analysis was performed to create Institutional and Macroeconomic latent factors that underlie manifest variable groupings. Thereafter, this study set literature precedent by constructing an original normalized index to calculate robustness scores for country-specific NDCs. NDC index scores and an OECD membership dummy variable were then added as exogenous variables alongside the latent factors to perform a structural equation model analysis.

This study provides the first SEM-based quantitative assessment of green bond market drivers. The results shed light on how factors that are known to impact conventional corporate and sovereign bond market growth affect green bond markets expansion as well. The results are also the first to show NDC impacts on green bond market capitalization. Specifically, the findings reveal that:

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1. Macroeconomic drivers behind conventional capital market growth that underlie the size of the economy, stock market capitalization, and trade openness also drive green bond market growth;

2. Institutional drivers behind conventional bond growth that underlie capital account openness, rule of law, and regulatory quality also drive green bond market growth, but indirectly;

3. OECD membership has a negligible impact on green bond market growth;

4. NDCs have the largest direct impacts (path coefficient: 0.19) of any exogenous variable on green bond market growth; and

5. Institutional factors exert considerable influence on macroeconomic factors, which indirectly affects green bond issuance volumes.

These findings also provide a number of theoretical and practical implications for sustainability, including:

1. Macroeconomic and institutional drivers of conventional capital market growth promote sustainability by accelerating green bond market capitalization;

2. Beyond conventional capital market determinants, NDCs are among the unique drivers of green bond market growth that promote sustainability as a result;

3. Institutional improvements should follow macroeconomic improvements in the pursuit of sustainability via green bond finance;

4. Green bond market growth stands to bridge the gap between economic factors and sustainability, and

5. NDCs are key to bringing down the firm costs of pursuing sustainability investments by promoting green bonds as lower cost finance alternatives.

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A few remaining considerations could be addressed in subsequent research. First, as the earliest green bonds were issued before the NDCs were officially submitted, it is likely that a number of additional environmental policies that align with the intended uses of green bond proceeds drove green bond issuances at various points in time. The climate, energy, and natural resource use mandates of the EU 20-20-20 Plan, China’s 11^th and 12^th Five-Year Plans, and the U.S. Clean Air and Clean Water Acts all represent macro-level directives that may have yet unmeasured impacts on green bond finance for infrastructure that enhances sustainability.

Similarly, the impact that particular targets within NDCs have on green bond issuances deserves attention. In this study, renewable energy capacity additions, forest management, and all other specific actions were broadly incorporated into NDC score calculations. Analyzing the

stringency of individual NDC target actions may reveal key insights into how each affects green bond finance for climate, sustainable development, and cleaner production investments.

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