Social tolerance, environmental responsibility and green bond market growth

Abstract

We use novel data from the IMF's climate database to examine the influence of social tolerance on the issuance of 285 green bonds across 66 countries from 1992 to 2021. To measure societal tolerance, we use the Berggren and Nilsson index. Our analysis incorporates a comprehensive set of control variables, including economic, institutional, political, and social factors, to provide deeper insights into the green bond market dynamics. Using panel data analysis, we find that higher levels of social tolerance are associated with increased green bond issuance. Additionally, we identify indirect positive effects through improved credit ratings, suggesting that a more tolerant social environment supports environmental and sustainable initiatives, which in turn facilitates the growth of green bond markets. To ensure the robustness of our findings, we conduct sensitivity analyses and address potential endogeneity using instrumental variable techniques. We further confirm our results through dominance analysis and explore the economic and institutional pathways mediating the relationship between social tolerance and green bond issuance. Our study highlights the key role of social tolerance in fostering environmental responsibility and green bond issuance, contributing to the dialogue on the interplay between societal values, financial markets, and sustainability.