Assessing the Nexus Between Green Finance, Green Bonds and Environmental Sustainability in Selected Countries

Abstract

This study examines the nexus between green finance, green bonds, and environmental sustainability in five countries Nigeria, Denmark, France, Spain, and the Netherlands over the period 2017-2025. Environmental sustainability is proxied by the ecological footprint per capita, while green finance flows, green bond issuance, and renewable-energy financing are expressed as ratios to real GDP to permit comparison across countries with different reporting currencies (USD and EUR). Using the Fixed Effects estimator with Driscoll-Kraay standard errors an estimator that is robust to heteroscedasticity, serial correlation, and cross-sectional dependence in panels with a moderate time dimension the results show that green finance and green bond issuance both significantly reduce the ecological footprint in the entity fixed-effects specifications, confirming their effectiveness in advancing environmental sustainability. Renewable-energy financing, by contrast, is associated with a significant increase in the ecological footprint in the short run, a pattern consistent with the early, infrastructure-intensive phase of the energy transition. Inflation exerts a small but statistically significant positive effect on the ecological footprint. The direction and significance of green bonds, renewable-energy financing, and inflation are consistent across pooled OLS, two-way fixed effects, and entity-clustered specifications, while the sign of green finance is sensitive to model choice and reverses under pooled OLS, a finding discussed in detail as part of the study's robustness analysis rather than presented as uniform robustness across all variables. The study recommends deepening green bond markets, particularly in emerging economies such as Nigeria, and pairing renewable-energy financing with efficiency and circular-economy measures to shorten the transition lag before environmental gains materialise.