Essays in sustainable finance: from capital markets to banks

In line with the article-based thesis format, this doctoral dissertation explores the multifaceted relationship between sustainable finance and financial systems, with a focus on how green finance instruments and environmental, social, and governance (ESG) integration affect markets, institutions, and banks. Structured as a collection of three research articles, the thesis provides complementary perspectives. The first study investigates the efficiency of green bonds in promoting renewable energy production across 55 countries between 2014 and 2022, employing Fully Modified Ordinary Least Squares (FMOLS). Results show that green bonds effectively support renewable energy, particularly wind power, although their efficiency weakened during the Covid-19 pandemic. The second study examines the role of institutional quality in shaping banks’ ESG performance in Europe, drawing on legitimacy theory. Using a fixed-effects regression on a panel of 71 listed banks from 21 countries (2010–2023), it finds that weaker institutional environments are associated with stronger ESG performance, suggesting that banks engage in ESG as a legitimacy mechanism. The third study assesses whether ESG integration enhances bank profit efficiency in Europe (2014–2024), applying a stochastic frontier analysis. Findings reveal that ESG, especially the environmental pillar, positively contributes to profit efficiency, whereas the social and governance dimensions show no significant impact. Collectively, these essays demonstrate that sustainable finance operates at multiple levels: financial markets mobilize resources through innovative instruments; institutional contexts shape corporate ESG strategies; and bank-level practices influence efficiency and competitiveness. The thesis contributes to academic debates by offering new empirical evidence, while also providing insights for policymakers, regulators, and financial institutions on how sustainability can be leveraged to enhance resilience and long-term value creation