Does green finance reduce carbon emissions? Global evidence based on system generalized method of moments

Abstract

Global environmental awareness has increased with the adoption of the sustainable development goals (SDGs) and the Paris Agreement. Global climate change has been a focal point in these international frameworks, with an emphasis on addressing environmental issues and setting specific targets for solutions. Financing plays a vital role in attaining goals established in international frameworks. The limitations of conventional finance have highlighted the need for green finance. There is a scarcity of studies in the literature examining the impact of green finance on carbon emissions, and a definitive conclusion has yet to be reached. This research aims to enhance the current literature by presenting empirical findings on how green finance influences carbon emissions globally. By employing the system generalized method of moments (GMM), developed by Arellano and Bover (1995) and Blundell and Bond (1998), this study investigated how green finance influences carbon emissions. Covering the span of 2017-2022, this study encompassed 48 countries across the globe. Green finance was found to have a negative and statistically significant impact on carbon emissions. Issuing green bonds to represent green finance, when increased by 1%, reduces carbon emissions by -0.012%.