What is it about?

This study examines the impact of green bond issuance on climate change in developing countries, focusing on the moderating role of political stability. Green bond issuance is linked to lower carbon emissions, and political stability strengthens this effect, possibly by supporting long-term policy commitment, reducing investment risk, and enabling green bond financing to translate more effectively into carbon reductions. These results are robust across various model estimators and alternative measures of the main dependent and independent variables. To maximize environmental impact in climate-vulnerable economies, it is thus essential to integrate green finance initiatives with strong governance and transparent reporting.

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Why is it important?

These findings offer important implications for policymakers and investors. Strategically, developing countries should prioritize not only the expansion of GB markets but also the integration of sustainability measures into growth-oriented policies and governance strategies, ensuring that political stability supports rather than undermines environmental goals. Operationally, developing countries should capitalize on sound political stability to ensure the transparent allocation of GB proceeds, strengthen monitoring mechanisms, and channel resources towards genuine climate-friendly investments. For investors, both political stability and the quality of environmental governance should be factored into market assessments, as their convergence is crucial for achieving genuine decarbonization outcomes and driving the transition towards a low-carbon economy.

Perspectives

Using panel data from developing countries, we find that (1) GB issuance is negatively associated with CO2 emissions, (2) political stability is positively associated with CO2 emissions, and strengthens the negative association between GB issuance and CO2 emissions. Robustness checks addressing potential endogeneity and using an alternative measure of climate change (greenhouse gas emissions) and political stability (political risk), as well as an additional sub-regional analysis (Asia, Africa, and Latin America), confirm the consistency of our main findings. Thus, although stability in developing countries often stimulates industrial expansion with increased fossil fuel consumption, it also induces a conducive environment in which green bonds can deliver climate benefits. Plausibly, by ensuring policy continuity, strengthening regulatory frameworks, and boosting investor confidence, political stability can enhance the credibility of green bonds and reinforce their role in mitigating climate change in developing countries.

Assistant Professor at CMS, Jain University Dr. Nikhil M N
Jain University

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This page is a summary of: Green bond issuance and climate change in developing countries: The role of political stability, Finance Research Letters, February 2026, Elsevier,
DOI: 10.1016/j.frl.2025.109391.
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