EconPapers    
Economics at your fingertips  
 

Leakage in the common ground: how misalignment in sustainable finance taxonomies impacts cross-border capital flows

Keith Jin Deng Chan, Lionel Wilson Mok and Peter Chi Choi Lau

Journal of Sustainable Finance & Investment, 2025, vol. 15, issue 3, 688-713

Abstract: There is an urgent need to direct capital toward climate change mitigation in emerging markets. To facilitate cross-border green capital flows, developed countries can endorse the common ground between their taxonomies and those in emerging markets. However, little is understood about the effectiveness of this policy. In response, we analyze how misalignment can occur between taxonomies and construct a micro-economic model to show that four ratios (green bond price ratio, supply elasticity ratio, taxonomy misalignment ratio and preferential treatment ratio) should be considered to ensure that the policy is not counterproductive to climate change mitigation. Numerical examples of the model show that among the capital flows directed from a developed market to endorsed green bonds in an emerging market, as much as 26% can leak to those that fall short of the criteria in the developed market's taxonomy; nevertheless, regulatory intervention can reduce the leakage down to 7%.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/20430795.2025.2481954 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:jsustf:v:15:y:2025:i:3:p:688-713

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TSFI20

DOI: 10.1080/20430795.2025.2481954

Access Statistics for this article

Journal of Sustainable Finance & Investment is currently edited by Dr Matthew Haigh

More articles in Journal of Sustainable Finance & Investment from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2025-07-02
Handle: RePEc:taf:jsustf:v:15:y:2025:i:3:p:688-713