Managing environmental finance in the digital era: Evidence from green bonds

Using recently available data on green finance from the International Monetary Fund, we analyze the impact of digital transformation on green bond issuance in forty-six countries during 1991-2021 within the context of environmental finance management. To measure digital transformation, we utilize the Digital Adoption Index provided by the World Bank and its subcomponents, aligning this analysis with broader environmental finance management strategies. Additionally, we control for the effect of various environmental, economic, and technological factors. Our results reveal a positive association between digital transformation and green bond issuance across these countries. Furthermore, our findings suggest that the effect of digital transformation on green bond issuance may not occur immediately and is characterized by a linear relationship. Our sensitivity testing and endogeneity analysis confirmed the reliability of our findings under different assumptions and model specifications. After decomposing the digital adoption index, our dominance analysis highlighted the key role of advancements in digital adoption by businesses, particularly, and the quality of capital services in the economy in driving the development of the green bond market. Further, stable political conditions, low enforcement costs, and fintech market growth mitigate enhance the digital transformation impact on green bonds. These results indicate potential directions for effective policy interventions.