Identifying the Institutional, Stakeholder, and Behavioral-Level Drivers and Barriers for Scaling the Green Bond Market

Abstract

The green bond market is one of the most public faces of sustainable finance around the world. Not only has it had an inter-, multi-, and transdisciplinary level of impact on how financial markets operate and addressing climate-related opportunities and challenges, but it has also instilled a sense of hope among stakeholders when it comes to climate action. However, with a growth of this market at an exponential rate, the reality of how stakeholders are adapting and rising to various challenges related to market development and scale are still under examined within the current academic literature. Using a multi-theoretical lens of institutional, stakeholder and behavioural theories, this dissertation addresses these literature gaps by evaluating the linkages between the “how”, “what” and “why” of green bond market growth. To do so, it employs a mix of methodological approaches and research designs. This dissertation undertakes a quasi-event-study approach and uses a difference-in-difference (DID) design to understand the direct impact of various green bond policies on the growth of this market – namely the “how” of market scale-up. To pinpoint “what” various market factors for scale-up are, this dissertation uses a concurrent mixed-methodological research design by triangulating various stakeholder or legitimacy-linked drivers and barriers of this market, using an expert-based survey as well as semi-structured interviews. To identify the motivations behind “why” this market is so highly in demand, this dissertation uses a discrete choice experimental survey among retail investors. By employing paired samples t-tests of differences and multivariate analysis of variance, this stage focuses on the influence of green bond framing effects as well as the mediating effects of behavioral norms and personal traits on investor preferences for green bonds. The results find that green bond markets are a complex ecosystem where a confluence of stakeholder engagement and policy approaches are required to effectively target current and future market growth. Furthermore, these approaches should be context specific in nature and tailored to the type of institution or country-level dynamics that already exist. Our results are also novel in its finding of the behavioral level biases and drivers in green bond investment decision-making and hence create a new theoretical framework by which we need to examine this market as well as other sustainable finance products. The main contribution of this work comes in the form of identifying the institutional, stakeholder, and behavioral-level drivers and barriers for scaling green bonds. More specifically, the growth of this market depends on the use of context-specific institutional coercive pressures and top-down policy approaches, fostering bottom-up market growth through stakeholder salience and legitimacy as well tapping into the individual level behavioral biases and heuristics in decision-making. The dissertation directly contributes to the fast-emerging body of academic literature on this market as well as provides a new institutional-, stakeholder- and behavioral-based theoretical framework by which to assess the impact of green bonds on a global scale.