Green bonds: Fueling green innovation or just a fad?

This study investigates the impact of green bond issuance on green innovation and its underlying mechanisms. We find that green bond issuance promotes green innovation, with stronger effects observed in regions with weaker climate regulation, industries exhibiting better environmental performance, and firms with more concentrated ownership. Further analysis reveals that corporate green bonds facilitate the reallocation of investment capital into research and development, effectively mitigating financial constraints on green innovation. This upsurge in green innovation not only enhances financial performance but also yields specific environmental benefits, such as improved environmental investment and ESG performance. These empirical results underscore the significance of green finance in fostering sustainable corporate innovation and advancing climate governance, rather than merely engaging in greenwashing practices.