The Role of Policy Innovation in Accelerating Green Bond Markets for Renewable Energy: Evidence from Emerging Economies
Keywords:
Green bonds, Policy innovation, Renewable energy, Sustainable finance
Abstract
The transition toward renewable energy in emerging economies requires innovative financing instruments that can bridge investment gaps while ensuring sustainability. Among such instruments, green bonds have gained prominence as a critical mechanism to mobilize private and institutional capital for climate-related projects. However, the expansion of green bond markets in emerging regions such as Africa and Asia has faced structural and institutional constraints. This review article investigates the role of policy innovation in accelerating green bond markets for renewable energy, focusing on evidence from emerging economies. By systematically integrating insights from more than 80 academic and policy sources, the paper provides a comprehensive framework that links policy innovation, institutional capacity, market maturity, and renewable energy financing to the expansion of green bond issuance.
The study adopts a multi-method empirical synthesis, including descriptive statistics, correlation analysis, fixed effects regression, feasible generalized least squares (FGLS), and dynamic panel two-step system generalized method of moments (GMM). These approaches are complemented with robustness checks, sensitivity analyses, and sub-sample evaluations covering the 2007–2008 global financial crisis and the COVID-19 pandemic (2020–2021). The results demonstrate that policy innovation exerts a strong positive effect on green bond issuance, both directly and indirectly, by strengthening institutional capacity, enhancing sovereign green bond credibility, and improving renewable energy financing channels. Furthermore, the analysis confirms that policy-driven instruments moderate the adverse effects of crises, thereby safeguarding renewable energy investment flows even during systemic shocks.
Key findings reveal that: (i) policy innovation significantly improves the attractiveness and credibility of green bond markets; (ii) institutional capacity and governance quality serve as mediating and moderating channels; (iii) green bond issuance contributes to renewable energy expansion and long-term market maturity; and (iv) external shocks such as financial crises and pandemics reshape but do not eliminate the positive role of innovative policies. The study also highlights important regional contrasts, with Asia displaying faster institutional adaptation and Africa requiring greater regulatory harmonization to unlock potential.
This review contributes to both theory and practice by advancing a theoretical framework that integrates policy innovation with green finance and by offering empirical evidence that underscores the importance of regulatory adaptability in achieving sustainable development goals (SDGs). Policy implications emphasize the need for governments to design flexible, transparent, and credible green bond policies, while investors are encouraged to align portfolios with climate-resilient assets. The paper concludes that green bonds, underpinned by robust policy innovation, can serve as catalytic tools for financing renewable energy transitions in emerging economies.
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References
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16. BIS (Ehlers, T., & Packer, F.). (2017). Green bond finance and certification. BIS Quarterly Review, September.
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31. Flammer, C. (2021). Corporate green bonds. Journal of Financial Economics, 142(2), 499–516.
32. Gatzert, N., & Kosub, T. (2016). Risks and risk management of renewable energy projects. Renewable and Sustainable Energy Reviews, 60, 982–998.
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45. Jacobsson, S., & Johnson, A. (2000). The diffusion of renewable energy technology. Energy Policy, 28(9), 625–640.
46. Karpf, A., & Mandel, A. (2018). The changing structure of green bonds. Energy Economics, 72, 145–158.
47. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The Worldwide Governance Indicators. World Bank Policy Research Working Paper 5430.
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49. Koenker, R., & Bassett, G. (1978). Regression quantiles. Econometrica, 46(1), 33–50.
50. Kose, M. A., Nagle, P., Ohnsorge, F., & Sugawara, N. (2020). Global Waves of Debt. World Bank.
51. Krishnamurthy, A., Nagel, S., & Vissing-Jørgensen, A. (2018). ECB policies involving government bond purchases. Review of Finance, 22(1), 1–44.
52. Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial Economics, 115(2), 304–329.
53. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1998). Law and finance. Journal of Political Economy, 106(6), 1113–1155.
54. Larcker, D. F., & Watts, E. M. (2020). Where’s the greenium? Journal of Accounting and Economics, 69(2–3), 101312.
55. Levine, R. (2005). Finance and growth. In P. Aghion & S. Durlauf (Eds.), Handbook of Economic Growth (Vol. 1A, pp. 865–934). Elsevier.
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57. Mazzucato, M. (2018). Mission-oriented research & innovation in the European Union. European Commission.
58. Meckling, J., Kelsey, N., Biber, E., & Zysman, J. (2015). Winning coalitions for climate policy. Science, 349(6253), 1170–1171.
59. Naeem, M. A., Farid, S., Ferrer, R., & Shahzad, S. J. H. (2021). Comparative efficiency of green and conventional bond markets. Energy Economics, 94, 105060.
60. Narayan, P. K., Phan, D. H. B., & Liu, G. (2021). COVID-19 lockdowns, stimulus policies, and stock market liquidity. Finance Research Letters, 38, 101732.
61. Nguyen, T., Bui, T. N., & Vo, X. V. (2022). Policy innovation and green bond issuance. Journal of Sustainable Finance & Investment, 12(3), 205–224.
62. North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press.
63. OECD. (2020). Sovereign green, social and sustainability bonds. Paris: OECD.
64. OECD. (2021). Green recovery policies: Policy responses to COVID-19. Paris: OECD.
65. Pastor, L., & Stambaugh, R. F. (2003). Liquidity risk and expected stock returns. Journal of Political Economy, 111(3), 642–685.
66. Parks, R. W. (1967). Efficient estimation with a priori information when disturbances are both serially and contemporaneously correlated. Journal of the American Statistical Association, 62(318), 500–509.
67. Pedersen, L. H., Fitzgibbons, S., & Pomorski, L. (2021). Responsible investing: The ESG-efficient frontier. Journal of Financial Economics, 142(2), 572–597.
68. Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. CESifo Working Paper No. 1229.
69. Pham, L. (2016). Is it risky to go green? A volatility analysis of green bonds. Journal of Sustainable Finance & Investment, 6(4), 263–291.
70. Polzin, F. (2017). Mobilizing private finance for low-carbon innovation. Technological Forecasting and Social Change, 123, 130–141.
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Published
2025-09-07
How to Cite
Varney, J. X. (2025). The Role of Policy Innovation in Accelerating Green Bond Markets for Renewable Energy: Evidence from Emerging Economies. European Scientific Journal, ESJ, 45, 36. Retrieved from https://eujournal.org/index.php/esj/article/view/19997
Section
ESI Preprints
Copyright (c) 2025 James X. Varney
This work is licensed under a Creative Commons Attribution 4.0 International License.
