Global Determinants of Sustainability Linked Financial Markets

Abstract

This study explored the global determinants of sustainability linked financial markets. The research further examined the hypothesis, whether there is significant association between sustainability linked financial markets and fossil carbon dioxide emission. A panel logit model was applied from the period 2009 to 2018 on the data derived from the global data base of GHG emission of all countries. The results of the logit regression model positively revealed that, at 99% level of significance, the issuance of sustainability linked finance are influenced positively by higher levels of fossil Co2 total and fossil Co2 per capita by country. It was further observed that fossil Co2 per GDP and GHG per GDP by country have a negative association with the issuance of sustainability linked finance. GHG per capita was noted in the logit regression as not having any influence over the issuance of sustainability linked finance at 99% level of confidence. Therefore, the study recommends countries in all the markets that have high emission levels of fossil Co2 per capita and total fossil emissions by country to issue sustainability linked finance to comply with COP21 climatic change agreement of limiting global warming levels to below 1.5 degree Celsius and of reducing GHG emissions to zero by 2050. The study observed the presence of blended finance, sustainable and green bonds, guarantees and insurance cover for green projects as the vital tools needed for the success of sustainability linked financial markets. The major impediment to the success of the sustainability linked financial markets was the increasing inequalities of accessing finance that was created by the drive to sustainability.

Key words: A panel logit model, Fossil carbon dioxide emission and sustainability linked financial markets

DOI: 10.7176/JESD/13-22-05

Publication date: November 30^th 2022