A Comparative Analysis of the Institutional Impact on the Green Bond Markets in India and China

Abstract

Introduction: Climate finance has played a crucial role in addressing climate change impacts through the funding of various adaptation and mitigation efforts around the world. One such tool that has mobilized vast amounts of money in the climate finance markets, has been the green bond. Green bonds are specifically used to raise capital to channel funding into green or climate-friendly projects – thereby filling a significant funding gap when it comes to infrastructure and climate finance. Furthermore, it is now evident that these bonds are being issued in national interest of a country’s growth and transition to a low carbon and climate change resilient (LCR) economy. That is why governments around the world have a key stake in ensuring that this market succeeds and grows.

Research Objective: The need for LCR investment is especially strong in emerging economies like India and China, which are highly vulnerable to climate change impacts. However, research related to institutional impact on the green bond market is currently limited. The research objective of this paper is to provide the basis for understanding how emerging country governments can potentially harness market growth, by maintaining the optimal balance of institutional pressure and regulatory policies in the market.

Methods: A convergent parallel mixed method approach is used to fill the gaps in qualitative and quantitative data. Quantitative analysis includes descriptive statistics using excel, whereas qualitative analysis involves interviews with high-level market players in the Indian and international green bond markets.

Results: Regulators are seen to be integral in growing the market in emerging economies like India and China. Their existing role and ability to influence the market depends on prevailing norms and field logics. For China, the institutional pressure exists in the green bond market due to the presence of regulators. For India, the institutional pressure is not completely there, as the regulatory priority is on other economic and governance issues. The growth in both markets is also driven by stakeholders like investors and industry associations, as well as due to international best practices.

Conclusion: In order to support growth, regulators need to coordinate with other regulators to set out clear and harmonized definitions of green, enable the creation of market infrastructure and engage high priority social actors to implement the institutional changes in the green bond market.