Determinants of climate financing and the moderating effect of politics: evidence from Bangladesh

Abstract

PurposeThere was no previous firm-level empirical research to examine cross-sectional differences in climate financing. The purpose of this study is to determine the key elements of the climate investment decision by business management. The study also explores how politics and media influence corporate climate investment decisions.Design/methodology/approachThe study incorporates a theoretical lens of institutional, stakeholder and media setting agenda to explain the relationship of climate finance with political connection and media influence along with other institutional and firm-specific variables. The sample of the study is collected from the financial sector firms that financed climate/green projects. In total, 178 firm-year observations are documented during 2014–2018. The unbalanced panel data model uses a fixed effect and a 2SLS regression model to test a set of hypotheses. The study uses several alternate methods to check and verify the reliability of the study.FindingsThe empirical findings show that climate finance is positively and significantly associated with Islamic Sharīʿah and media visibility, and negatively and significantly related to financial constraints. Moreover, the empirical results document that listing regulation has no significant influence on climate investment. The political connection plays a negative moderating role between media and climate finance. The result indicates that if a former or current politician is on the board, the media’s positive impact on climate financing diminishes.Practical implicationsThe study has significant managerial implications especially to the regulatory bodies, business management and policymakers. The central bank in the developing countries needs to take into consideration the finding of the study promoting climate/environmental/green finance and investment. Islamic Sharīʿah promotes climate finance that would be a prominent indicator for Islamic financial institutions.Social implicationsPolitics can deter positive decisions on climate financing such that it negatively influences the media’s role of a watchdog of the society in developing countries. Climate investment would be an important mechanism to reduce carbon emissions and environmental hazards and to solve many social problems.Originality/valueThe study provides first-ever firm-level evidence of the determinants of climate finance and investment that has a significant value in the area of climate change and green investment by the financial firms.