Green bonds and their effectiveness: Mitigating emissions and enhancing sovereign ESG scores

Urol Berdiev; Urol Berdiev

doi:10.3934/GF.2025028

Green Finance

2025, Volume 7, Issue 4: 748-770. doi: 10.3934/GF.2025028

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Research article

Green bonds and their effectiveness: Mitigating emissions and enhancing sovereign ESG scores

Urol Berdiev ^,

Graduate School of Economics, The University of Osaka, Osaka, Japan

Received: 16 June 2025 Revised: 23 September 2025 Accepted: 11 December 2025 Published: 18 December 2025
JEL Codes: Q56, G23, O44

In this study, we empirically investigated the dual impact of green bond issuances on greenhouse gas (GHG) emissions and sovereign Environmental, Social, and Governance (ESG) scores. Using a fixed-effects panel regression model for a global sample of countries from 2000 till 2022, we found that green bond issuance is correlated with a significant reduction in GHG emissions in the subsequent years. This negative effect is stronger in countries with higher levels of financial development. Furthermore, we documented a positive impact on sovereign ESG scores, though this effect is more pronounced in lower-income economies and diminishes with a country's development level. Heterogeneity analyses revealed that the credibility signal of external verification is context-dependent: Its value is greatest in markets where credibility is scarce, such as in lower-ESG or less financially developed countries. Our findings highlight that the efficacy of green bonds is not uniform but is critically shaped by a nation's economic structure, financial sophistication, and existing sustainability trajectory. These results offer nuanced policy implications for designing targeted green finance strategies to maximize their environmental and financial returns.
- green bonds,
- greenhouse gas emissions,
- carbon emissions,
- sovereign ESG scores,
- effectiveness
Citation: Urol Berdiev. Green bonds and their effectiveness: Mitigating emissions and enhancing sovereign ESG scores[J]. Green Finance, 2025, 7(4): 748-770. doi: 10.3934/GF.2025028

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Abstract

In this study, we empirically investigated the dual impact of green bond issuances on greenhouse gas (GHG) emissions and sovereign Environmental, Social, and Governance (ESG) scores. Using a fixed-effects panel regression model for a global sample of countries from 2000 till 2022, we found that green bond issuance is correlated with a significant reduction in GHG emissions in the subsequent years. This negative effect is stronger in countries with higher levels of financial development. Furthermore, we documented a positive impact on sovereign ESG scores, though this effect is more pronounced in lower-income economies and diminishes with a country's development level. Heterogeneity analyses revealed that the credibility signal of external verification is context-dependent: Its value is greatest in markets where credibility is scarce, such as in lower-ESG or less financially developed countries. Our findings highlight that the efficacy of green bonds is not uniform but is critically shaped by a nation's economic structure, financial sophistication, and existing sustainability trajectory. These results offer nuanced policy implications for designing targeted green finance strategies to maximize their environmental and financial returns.

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