ABSTRACT This study investigates the impact of green bonds on environmental sustainability for a panel of 15 countries from 2014 to 2024, using the load capacity factor (LCF) as the main proxy for environmental quality, with biocapacity, ecological footprint, and CO 2 emissions per capita used as additional environmental indicators. Empirically, we employ a panel data framework combining fixed effects estimation with instrumental variable generalized method of moments (IV‐GMM), using lagged values of the endogenous regressors and an external shift‐share instrument based on global green bond issuance to address potential endogeneity and reverse causality concerns. To account for cross‐sectional dependence, standard errors are corrected using Driscoll–Kraay estimators. In addition, we apply panel quantile regression techniques at the 10th, 50th, and 90th percentiles to examine heterogeneous effects across the distribution of environmental performance. The results show that higher green bond issuance significantly improves LCF and biocapacity, while reducing the ecological footprint and CO 2 emissions. These effects are robust across model specifications and are stronger in countries with higher levels of environmental performance and greater environmental pressures. The findings highlight the central role of green finance in supporting the transition to more sustainable development.
Tomczak et al. (Sun,) studied this question.