Towards net zero: Implications of environmental regulations on green finance

Md Al Mamun, Sabri Boubaker, Md Zakir Hassan and Riadh Manita

Finance Research Letters, 2025, vol. 79, issue C

Abstract: The 2024 IPCC (Intergovernmental Panel on Climate Change) report highlights that financing is a major concern in achieving the net zero goal. This paper studies the impact of environmental regulations and policies adopted by countries in promoting green finance. Using a large sample of 42 countries, we show that environmental regulations and green finance policies significantly boost the size and issuance of green finance instruments both by corporate and government issuers. Moreover, these regulations and policies enhance the longevity and attractiveness of green bonds issued by various economic agents, both in the short and long run. The effect of environmental regulations and policies on green finance is particularly pronounced in countries with lower geopolitical risk, low energy security, and higher energy needs per dollar of GDP. Our results remain robust under the conditions of short-run heterogeneity, long-run homogeneity, and cross-sectional dependence in the sample.

Keywords: Green finance; Financial markets; Energy security; Environmental regulations; Environmental behavior (search for similar items in EconPapers)
JEL-codes: G24 G28 O16 O44 Q50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325005628

DOI: 10.1016/j.frl.2025.107299

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