The effect of air pollution on Chinese green bond market: The mediation role of public concern

Green bonds are becoming increasingly important in sustainable investments since their environmental protection attributes allow them to benefit from environmental degradation. However, the mechanism of environmental degradation on green bonds has not yet been studied. This study proposes a mediation model to analyze air pollution's influence on green bonds. Theoretically, air pollution leads to increased public concern through public environmental awareness and perceptions of physical health risks. Enhanced public concern drives investors' green preference and environmental responsibility, thus expanding green bond demand, in which public concern plays an important mediation role. To verify the mediating effect, causal stepwise regression and bootstrap methods are used. The empirical results confirm this theoretical mechanism. Air pollution is significantly positively related to public concern. Public concern is positively linked with green bond investment willingness, resulting in increased volatility. The total positive effect of air pollution on green bonds is partly absorbed by the mediating effect of public concern that is significantly positive and reaches 30.21% of the total effect. In addition, major crisis events (e.g., COVID-19) may hinder the positive mediation process by generating a negative trend and distracting the public. This means that the government could propose appropriate measures to minimize the negative aspects in order to promote green finance. The mediation model is also useful for investors wishing to increase green assets in their portfolios and provides an incentive for businesses to promote green finance. •Air pollution boosts public concern via physical sense and environmental awareness.•Public concern expands investment demand for green bonds due to green preference.•Public concern mediates the relationship between air pollution and green bond.•The mediation role of public concern helps to promote green financing.•COVID-19 hinders the mediating effect, which can be muted by stabilizing public mood policies.