Does Green Finance Reduce Carbon Emissions? Global Evidence Based on System Generalized Method of Moments

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors The issue raised is current and important. In the theoretical part, the author rightly noticed a research gap in this area. It should be emphasized above all that despite the large number of articles related to the issue of green finance - the vast majority of them focus on the problem of their effectiveness and validity. Less emphasis is placed on the aspect that seems to be key. It is about reducing carbon dioxide emissions. It is the reduction of carbon dioxide that is (or at least should be) the reason for the construction of instruments referred to as green finance. Therefore, the article is very important from the point of view of the relationship between green finance and its impact on carbon dioxide emissions. Is there a relationship here? And if so, is it significant?   The structure of the article is correct. The article consists of a theoretical and empirical part. The theoretical part cites the most important studies related to the described issue. The literature has a total of 54 items. It is extensive and up-to-date. The cited items are consistent with the discussed topic. There are a total of 29 items published after 2020. This shows that the author has a good understanding of the discussed issue.   The methodological part is well described.   The author uses System GMM. I consider the choice of such a method to be appropriate. This is a method that can be used in the case of limitations of other classic statistical tools. Especially when the analysis involves a large number of different types of data. This method provides quite a lot of flexibility, which in the case of this study can be treated as the right choice of method for the study.   The collected data and their period – from a statistical point of view – provide the basis for a reliable analysis and can be used to draw reliable conclusions.   The tables are legible and well-prepared. The formulas are similar. The article is written in good language.   After conducting the analysis, the author received reliable results that confirm the achievement of the research goal. Based on the analysis, the conclusion was obtained that green finances have a significant impact on reducing CO2 emissions. In the final part, the author also refers to the limitations and future directions of research. This is particularly important due to the topicality of the discussed problem and possible political implications.  

 

Author Response

First, I would like to thank the referee for valuable contributions. Below, you will find a list of the corrections made.

1. According to the referee’s statement, the focus was primarily on carbon emissions, and the study’s aim was clarified;

“Preventing the damage caused by carbon dioxide emissions to the environment is a general problem for all economies. The inadequacy of conventional finance and financing tools in solving the carbon emission problem has led to the development of green finance. Green finance is primarily used to finance renewable energy and energy efficiency projects; however, it also involves other environmentally friendly projects (such as clean transport, green buildings). It is crucial to recognize that green projects encompass diverse initiatives to reduce carbon emissions for the environment. Therefore, it is essential to evaluate the effectiveness of green finance on carbon emissions. Within the scope of this context, the study seeks to investigate the hypothesis, as stated below”.

2. The significant role of green finance in reducing carbon emissions has been prominently emphasized.

"The system GMM estimation findings showed a statistically significant negative impact of green bond issuance on carbon emissions. The obtained outcome supports the research hypothesis. As expected, green finance has shown its effectiveness in reducing carbon emissions."

"Issuing green bonds to represent green finance, when increased by 1%, reduces carbon emissions by -0.012%."

Author Response File: Author Response.docx

Reviewer 2 Report

Comments and Suggestions for Authors

The peer-reviewed manuscript “Does green finance reduce carbon emissions? Global evidence based on system GMM” is timely given the increasing climate change and the need to intensify sustainable development activities. The author of the article argues that there is a lack of studies in the literature analyzing the impact of green finance on carbon dioxide emissions, therefore, the author attempts to present the results of empirical studies on the effects of green finance on carbon dioxide emissions worldwide. Hence, the research gap is identified and an attempt is made to fill it by conducting empirical studies over the period 2017-2022 based on the Generalized Method of Moments (GMM) developed by Arellano and Bover (1995) and Blundell and Bond (1998). The study covers 48 countries around the world. The conclusions presented by the Author indicate that green finance has a negative and statistically significant impact on carbon dioxide emissions, which correctly verifies the research hypothesis stated in the manuscript "H1: Green finance harms carbon emissions".

In terms of the journal’s editorial requirements, the article was developed correctly, including an introduction (with a justification of the motives for taking up the topic), a literature review, research methods, results and discussion, and conclusions (with highlighting of limitations and future areas of research).

The strength of the article is the econometric research undertaken, based on the GMM system method, as well as the correct review of 54 items of literature on the subject. The research problem and research gap were correctly outlined in the introduction, and a research hypothesis was put forward, which was correctly verified. The methods and research material do not raise any serious objections.

To improve the quality and reception of the manuscript by potential readers, it seems appropriate to put forward several suggestions for consideration:

- The author states that the study covered 48 countries, it would be appropriate to indicate what is the carbon dioxide emission of these countries, what is its share of the emission worldwide, how it is reduced, by what actions, and what role green finance plays in this respect.

- It would be appropriate to describe the research sample in more detail, the information provided in the manuscript is very superficial, which leaves one unsatisfied;

- It would also be interesting to include a ranking of countries that are leaders in carbon dioxide emissions and a ranking of countries taking effective actions to reduce it, a ranking of countries in terms of the number of green bonds issued.

After considering the above suggestions, I recommend the manuscript for publication.

Author Response

First, I would like to thank the referee for valuable contributions. Below, you will find a list of the corrections made.

1. According to the referee’s statement, the research sample is described in more detail;

"Including countries in the analysis was determined primarily based on data availability. According to the IMF’s classification, 27 of the countries within the scope of analysis are developed economies. The other countries included in the analysis, except Bermuda and Macao, are classified as emerging and developing countries by the IMF. These two countries are unclassified in the IMF classification."

2. According to the referee’s statement, the country’s highest share of global carbon emissions is given.

"The countries included in the analysis, which have the highest share of global carbon emissions as of 2022, are listed in Figure 1. The green bond issuance amounts of these countries for 2022 are shown in Figure 2. When Figure 2 is examined, it is seen that China made the highest amount of green bond issuance. Germany and the USA followed China. Issuing green bonds is more prevalent among developed countries with high carbon emissions, yet the remarkable green bond issuance by China, an emerging economy, should not be overlooked."

Author Response File: Author Response.docx

Reviewer 3 Report

Comments and Suggestions for Authors

The authors discuss the impact of green finance on carbon emissions within the framework of sustainable development, using 48 countries around the world. This enriches the existing research framework. However, some problems still exist. When these issues can be well addressed, it can be published.

1. The abstract needs to give the effect size of green finance on carbon emissions.

2. The format of the references should be corrected.

3. Some new findings should be added to the literature review to highlight the marginal contribution of the research.

4. In table 3, the regression coefficients for lnCO₂L1 and ln CO₂L2 are significantly positive. This phenomenon needs to be explained.

5. The content would be more complete if the differences in the impact of green finance on CO2 emissions are discussed between developed and developing countries.

6. The grammar needs to be corrected.

Comments on the Quality of English Language

Minor editing of English language required.

Author Response

First, I would like to thank the referee for valuable contributions. Below, you will find a list of the corrections made.

1. The impact of green finance on carbon emissions is given in the abstract;

“Issuing green bonds to represent green finance, when increased by 1%, reduces carbon emissions by -0.012%.”

2. The references have been rearranged according to the formatting guidelines specified by the journal.
3. Three newly conducted studies in 2024 have been added to the Literature Review section;

Liu, H., Yang, J., Zhao, F., Jiang, L., & Li, N. (2024). Can green finance mitigate China’s carbon emissions and air pollution? An analysis of spatial spillover and mediation pathways. Sustainability, 16(4), 1377.

Ma, Z., & Fei, Z. (2024). Research on the mechanism of the carbon emission reduction effect of green finance. Sustainability, 16(7), 3087.

Zhao, X., Benkraiem, R., Abedin, M. Z., & Zhou, S. (2024). The charm of green finance: Can green finance reduce corporate carbon emissions?. Energy Economics, 134, 107574.

4. The regression coefficients for lnCO₂L1 and lnCO₂L2 are explained.

"The lag of the first (lnCO₂L1) and second (ln CO₂L2) order of dependent variable are between 0 and 1, as expected, and are statistically significant. This shows that current carbon emissions are interconnected with past carbon emissions, exhibiting a dynamic framework."

5. When considering the worldwide evidence, the distinction between conventional developed and developing economies is insufficient for explanatory purposes. As a case in point, countries such as China, traditionally grouped under the developing country classification, display remarkably high levels of green bond issuance. It is not workable to perform this assessment for every developing country. Hence, examining outcomes in developed and developing countries may lead to the adoption of misguided policy alternatives.
6. Some grammar mistakes corrected. Such as; 

"...Though in the East Asia Region, green finance was found to reduce carbon dioxide emissions in the short and long term..."

"...Futher, the rise in real GDP per capita plays a role in the reduction of carbon emissions through the stimulation of market demand for environmentally friendly goods such as green vehicles and sustainable buildings..."

"...Regarding another control variable, it was found that the total population had a statistically significant and positive effect on carbon emissions..."

"...The study encompassed 48 countries and revealed a statistically significant negative effect of green finance on carbon emissions..."

Author Response File: Author Response.docx