Governing Climate Finance. States, Markets, and Institutional Dynamics in a Low-Carbon Transition

The mobilization of climate finance is a fundamental challenge in the transition to a low-carbon economy. In this thesis, I contribute to the literature that examines the role of institutional design in shaping an effective mobilization of climate finance through three empirical studies, and I highlight the challenges of matching public rules, regulations, and practices to climate purposes. Overall, I show the importance of aligning formal rules, market incentives, and information provision to support a greening of finance, and the difficulties in deploying public power to support this form of environmental purpose. The first paper investigates the impact of the EU Green Bond Standard (GBS) on green bond pricing, arguing that its introduction increased bond yields as investors adjusted to stricter regulatory scrutiny. The findings suggest that firms with weaker environmental reputations faced a "greenwashing premium," while those with strong sustainability credentials experienced minimal market disruption. This study highlights the effectiveness of public regulation in reducing information asymmetry but also reveals short-term costs for issuers. The second paper examines the European Central Bank’s (ECB) role in green finance by analyzing the unintended anti-green bias embedded in its collateral framework. Through a comparative analysis of green and conventional bonds, the study finds that the ECB applies higher haircuts to green assets, effectively raising borrowing costs for sustainable projects. This institutional bias, driven by market neutrality principles, undermines the financial viability of green bonds and challenges the ECB’s commitment to climate-aligned monetary policy. The paper study evaluates the World Bank’s Maximizing Finance for Development (MFD) framework, which aims to leverage private capital for climate finance in developing economies. Using a qualitative comparative analysis, the study finds that MFD disproportionately benefits middle-income countries while failing to mobilize funds for the most climate-vulnerable nations. The results highlight structural constraints in development finance and the limitations of market-driven approaches in addressing global climate inequities.