Capital for a Greener Future: The Role of Sustainable Finance in Shaping Corporate Finance and Investment Decisions
Date
2025
Authors
Li, Wei
Editors
Advisors
Cheong, Chee
Zurbrugg, Ralf
Mihaylov, George
Zurbrugg, Ralf
Mihaylov, George
Journal Title
Journal ISSN
Volume Title
Type:
Thesis
Citation
Statement of Responsibility
Conference Name
Abstract
Sustainable finance has emerged as a significant force in global financial markets, reshaping capital allocation by prioritizing not only financial returns but also environmental and social outcomes. This thesis examines the evolving role of sustainable finance, focusing on its influence on corporate behaviour, investment strategies, and market performance. At its core, sustainable finance integrates environmental, social, and governance (ESG) considerations into financial decision-making, encouraging companies and investors to align their activities with broader societal objectives such as addressing climate change, promoting social equity, and strengthening governance practices. Despite its growing importance, critical knowledge gaps remain regarding the specific mechanisms through which sustainable finance affects financial markets and the extent to which it contributes to value creation for firms and investors. To address these gaps, this thesis examines key issues in sustainable finance through three chapters, each exploring a distinct aspect of its integration and implications for market participants. The first project analyses the pricing effects of green bonds, focusing on how the environmental profiles of issuing firms influence market outcomes. Using a unique dataset, it investigates how firm-level environmental performance shapes investor perceptions and bond pricing, highlighting the strategic value of strong environmental credentials. The second project examines the impact of government-led Climate Action Plans (CAPs) on investor attention in the United States, assessing how these non-legislative frameworks influence corporate disclosures and market reactions. Employing a difference-in-differences approach, it demonstrates the broader market implications of soft law in promoting sustainable corporate practices. The third project investigates the effects of government environmental regulations, specifically China’s Low Carbon City Pilot (LCCP) Policy, on investor sentiment. It explores how environmental regulations shape market perceptions of firms, showing that stricter policies can significantly affect investor behaviour and firm-level financial outcomes. Collectively, these chapters provide new insights into the mechanisms through which sustainable finance shapes modern financial markets, contributing to a better understanding of ESG’s evolving role, particularly the environmental pillar. The second chapter examines the pricing mechanisms of green bonds and the influence of firm-level environmental performance on market outcomes. It specifically explores how firms’ environmental profiles affect the cost of capital and investor demand for green bonds. Using a matched-pair method, it analyses yield differentials and finds that firms with strong environmental credentials often secure lower yields, indicating a reduced cost of debt. The findings show that green bonds issued by firms with high environmental ratings tend to be priced at a premium compared to those with weaker environmental performance, reflecting investor willingness to accept lower returns to support sustainable initiatives. This chapter contributes to the broader literature by quantifying the financial benefits of environmental performance, demonstrating that green bonds not only enhance a firm’s reputation but also reduce borrowing costs, improving financial efficiency for issuers. The third chapter examines the impact of government-led Climate Action Plans (CAPs) in the U.S. on corporate behaviour and market responses, focusing on how these policies shape investor attention and influence firm disclosures. As non-legislative frameworks, CAPs guide firms toward sustainable practices without imposing strict regulatory mandates, fostering an environment that encourages voluntary compliance. This chapter explores how CAP adoption affects the frequency and quality of firms’ environmental disclosures and the subsequent investor reaction. Using a difference-in-differences approach, the analysis compares firms in states that adopt CAPs with those that do not, providing evidence that firms under CAP jurisdictions tend to improve environmental transparency and attract greater investor interest. The findings suggest that soft law plays a role in promoting sustainable finance, demonstrating that government signals, even without binding regulations, can encourage firms to enhance environmental performance. This chapter contributes to the sustainable finance literature by illustrating how policy frameworks influence corporate behaviour, strengthening the alignment between investor expectations and firm practices in the context of sustainable development. The fourth chapter examines the impact of government environmental regulations on corporate behaviour and investor sentiment, focusing on China’s Low Carbon City Pilot (LCCP) Policy. Introduced to promote low-carbon development in selected cities, the LCCP Policy provides a valuable case study for understanding how environmental regulations influence corporate actions and market perceptions. Using a difference-in-differences approach, this study analyses the policy’s effects on firms in pilot cities, showing that these firms experience a significant increase in positive investor sentiment. The chapter also explores the role of financial analysts as intermediaries, finding that analyst coverage amplifies the policy’s impact on investor perceptions by reducing information asymmetry. These findings contribute to the broader discussion on the externalities of environmental regulations, demonstrating that government policies can enhance market confidence in firms actively engaged in sustainable practices. Following this analysis, the fifth chapter concludes the thesis by summarizing key findings, discussing contributions to the literature, and outlining limitations and directions for future research. It summarizes insights from the previous chapters to provide a comprehensive understanding of how sustainable finance influences corporate decision-making and market outcomes. The chapter also highlights the broader implications for investors, policymakers, and firms, emphasizing the financial relevance of sustainability commitments. Moreover, it acknowledges the study’s limitations and suggests directions for further research.
School/Discipline
Adelaide Business School
Dissertation Note
Thesis (Ph.D.) -- University of Adelaide, Adelaide Business School, 2025
Provenance
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