The Determinants of Green Bond Issuance in Indonesia: An Analysis of Sustainable Financial Instruments

Abstract

Green Bonds (GBs) have emerged as one of the most prominent innovations in sustainable finance instruments in recent times, necessitating an understanding of the factors determining their issuance. However, empirical literature on the factors driving GB issuance in Indonesia is limited. This study aims to investigate the impact of bond characteristics and macroeconomic factors on Government and Corporate Bond issuance from 2018 to 2023 using a random-effects panel regression model. The results confirm that all factors, except economic growth, have a significant effect on GB issuance; however, the impact of some factors differs between government-issued GBs and corporate-issued GBs. Among them, the green stock market and exchange rate have a positive effect on Corporate GB issuance, but the opposite is true for Government GB issuance. Furthermore, increases in interest rates and coupon rates encourage more government GB issuance but have the opposite effect on Corporate GB issuance. Our results contribute to the literature on sustainable finance, providing policymakers, issuers, and investors with valuable practical insights to encourage the development of the green bond market.

1. Introduction

Green Bonds (GBs) have gained popularity and traction recently as an essential financial instrument as economies transition towards greater climate resilience and decarbonization (Sartzetakis, 2021). GBs are sustainable fixed-income instruments that help combat climate change and support the financing of environmentally friendly projects. GB financing is an alternative to catalyze cash flows towards a low-carbon economic transition and promote sustainable development (Azhgaliyeva & Kapsalyamova, 2023). The Paris Climate Agreement has heightened awareness of environmental issues and the need for sustainable financial solutions, driving rapid growth in the global GB market over the past few years. The global GB market is a promising option for financing low-carbon projects and renewable energy development (Banga, 2019). Governments and corporations have played a significant role in issuing GBs as a source of long-term financing, thereby demonstrating their commitment to sustainability (Gabr & Elbannan, 2024). Funds raised from the issuance of GBs by the government are allocated to finance projects with environmental benefits, driving the transition to a low-carbon and climate-resilient economy, such as renewable and efficient energy sources, sustainable transportation, and conservation and climate resilience initiatives. Corporations have also shown strong interest in issuing GBs to support green projects that address climate change and environmental impacts. Furthermore, issuing GBs improves corporate reputation, attracts socially responsible investors, and improves financial performance (Ordonez-Borrallo et al., 2024). Investors are increasingly interested in actively participating in the green bond market to demonstrate environmental responsibility and benefit from portfolio diversification. Investors who fund green projects through GBs make sustainable investments committed to mitigating climate change and reducing carbon emissions. Therefore, fluctuations in the energy and carbon markets can influence investors’ investment decisions in the GB market (Jin et al., 2020).

The European Investment Bank (EIB) was the first financial institution to issue the world’s first Climate Awareness Bond (CAB) in late 2007, raising US$0.9 billion to be allocated to eligible green projects. Since then, GBs have become an increasingly popular green finance instrument in both developed and developing countries. The Climate Bonds Initiative (CBI) reports that the cumulative global volume of GB issuance reached US$2.6 trillion in the third quarter of 2023 (Ruan et al., 2025). In line with the development of the global green bond market, GB issuance in Indonesia has increased rapidly as awareness of Environmental, Social, and Governance (ESG) issues and the Sustainable Development Goals (SDGs) has grown. The issuance of GB also demonstrates a strong commitment to green and sustainable financing and is part of efforts to mitigate and adapt to climate change. The Government and Corporations issue GBs in Indonesia in the form of Environmentally Sound Debt Securities (GB) and Environmentally Sound Sukuk (GS). The government initiated GB issuance in 2018 with the initial issuance of GS Global, valued at US$1.25 billion, and by 2025, it had reached a total value of US$7.7 billion. The details are as follows: US$750 million (2019), US$750 million (2020), US$750 million (2021), US$1.5 billion (2022), US$1 billion (2023), US$600 million (2024), and US$1.1 billion (2025). In addition to GS Global, the government also issued Sustainable Development Goals (SDG) bonds in 2021, amounting to US$584 million, making Indonesia the first country in Southeast Asia to issue SDG bonds in the global debt capital market. Corporations also contributed to the issuance of SDG bonds, known in Indonesia as Environmentally Sound Bonds, to mobilize funds from green investors to support environmentally sustainable projects. Projects funded by SDG bonds include renewable energy development, such as solar or wind power plants; energy efficiency projects; waste and clean water management; sustainable transportation; and green infrastructure development. The Indonesian Financial Services Authority (OJK) also reported that 22 public offerings of GBs, totaling Rp36 trillion, were issued from 2022 to 8 May 2025. The OJK has revised the issuance regulations and requirements for GBs within a clear legal framework, facilitating corporate access to issue GBs. Indonesia demonstrates its commitment to the Paris Agreement by addressing global and ASEAN regional issues in its efforts to mitigate the impacts of climate change. Indonesia has significant potential for green financing to support renewable energy development (Guild, 2020; Nabella et al., 2025). Investor demand for GBs in the Indonesian capital market continues to increase for clean energy project financing.

The increasing issuance of GBs in Indonesia necessitates an analysis of their determinants and an understanding of these factors to inform policy implications that further promote coordinated green finance development. However, we recognize that understanding the factors driving GB issuance remains limited, while interest in GB offerings and investments is growing (Cicchiello et al., 2022). Literature on the drivers of government and corporate bond issuance is limited. This paper aims to fill this gap by providing a deeper understanding of the factors that influence the volume of GBs issued by governments and corporations. Specifically, drawing on theoretical perspectives on financing needs and external conditions, we examine the key drivers of Indonesian GB issuance, accounting for bond characteristics and macroeconomic indicators.

This paper contributes to the existing literature in three main ways. First, our study contributes to the growing literature on the green equity market by providing empirical evidence on potential drivers of green equity issuance in Indonesia. Several key factors in the development of Indonesia’s green equity market include global oil prices, the exchange rate, and market dynamics. The development of green equity aligns with green financial instruments, which are widely adopted and part of Socially Responsible Investment (SRI). Analysis of crude oil prices can determine GB’s future. Rising oil prices encourage green equity issuance to finance renewable energy investments, as companies seek alternative energy sources to replace crude oil. Additionally, GB is a safe-haven investment instrument and a hedge against oil price shocks and market uncertainty. Exchange rate changes determine the volume of green equity issuance in global financial markets and the development of the domestic green equity market. Second, our study is the first to conduct a comparative analysis of the impact of bond characteristics and macroeconomic factors on the volume of government and corporate green equity issuance in Indonesia. The government’s issuance of green equity is dominated by GS Global instruments denominated in foreign currencies, which are traded on global financial markets. Meanwhile, corporations issue environmentally sound bonds in rupiah, which are traded on the domestic bond market. This comparative analysis can help us identify the impact of various factors that may facilitate GB development across different markets. Third, given the Indonesian government’s commitment to Net Zero Emissions (NZE) and the Sustainable Development Goals (SDGs), this study contributes to developing the GB market as a sustainable financial instrument. Our findings are not only important for the Indonesian GB market but also for markets in other developing countries. By identifying the key determinants of GB issuance, corporations and governments can actively participate in the GB market by increasing capital allocation and sustainable financing to support the achievement of Indonesia’s NZE targets. For investors, the findings of this study can serve as a reference in determining appropriate and profitable investment portfolio management strategies.

The following sections of this paper comprise Section 2, which presents a literature review that supports the development of the hypothesis. Section 3 provides data and methodology aligned with the research objectives. Section 4 presents the results of descriptive and inferential statistical tests, while Section 5 provides an in-depth discussion of the research findings. Section 6 presents a conclusion, including practical implications, limitations, and an agenda for future research.

2. Literature Review

2.1. Green Bonds: Sustainable Financial Instruments

GBs have emerged as one of the most prominent innovations in sustainable finance instruments in recent times (Maltais & Nykvist, 2020). The International Capital Market Association (ICMA) defines GBs as any bond instrument whose proceeds are used exclusively to finance or refinance, in whole or in part, new and/or existing eligible green projects (ICMA, 2018). In other words, GBs are a fixed-income financial instrument issued by Governments and Companies to raise funds for long-term, environmentally friendly projects, particularly those related to climate change mitigation and adaptation. The impressive growth in sustainable finance has made GBs an effective financial instrument for reducing carbon emissions and improving energy efficiency, thereby promoting sustainable development. A GB is issued to demonstrate the issuer’s strong commitment to environmental protection, which increases public trust and recognition (Gan et al., 2024). For companies, GB issuance supports sustainable operations and long-term value creation, thereby securing low-cost financing by optimizing their capital structure (Tang & Zhang, 2020). Flammer (2020) and Zhou and Cui (2019) show that GB can increase company value through improved financial performance, CSR practices, and environmental ratings. Investors find GBs attractive as financial instruments that can help them internalize environmental externalities and encourage green investment to achieve sustainable development. The Climate Bonds Initiative (CBI) has developed a GB certification standard, which helps investors and governments classify and prioritize investments that effectively address climate change.

In addition to GBs, Green Sukuk (GS), a combination of sukuk and green finance, has emerged as a key instrument for mobilizing Islamic finance to support environmentally friendly and Sharia-compliant sustainable projects (F. H. Liu & Lai, 2021; Endri et al., 2022). Sukuk are debt instruments that comply with Sharia (Islamic law) principles and provide asset-based returns to their holders. Unlike traditional sukuk, GS exclusively finances green projects to address climate change and support sustainable development in accordance with Sharia principles (E. Lee et al., 2025). GS issuance has recently experienced rapid growth, particularly in large-scale investments in energy efficiency, renewable energy, and climate change mitigation projects, underscoring its role as a key instrument in sustainable finance (Ulfah et al., 2023). Furthermore, GS emerged at an opportune time amid growing attention to Islamic finance, socially responsible investing (SRI), and the sustainability agenda (Alkadi, 2024). For investors concerned with environmental issues and adherence to Sharia principles, GS serves as an investment instrument that can add value by diversifying their portfolios (Akhtar et al., 2023).

GB and GS are sustainable financial instruments designed to finance environmentally friendly green projects and contribute to climate change mitigation (E. Lee et al., 2025). The differences between these two instruments are reflected in their structure, ownership, and regulatory compliance. GBs are fixed-income instruments where the issuer receives funds from investors and is obligated to pay periodic interest and repay the principal at maturity, following a standard debt-based financing structure. In contrast, GS are required to comply with Sharia principles, thus being interest-free, incorporating risk-reward sharing, asset ownership, and the potential for principal loss or profit based on specific assets/projects (Ulfah et al., 2023). Furthermore, while GBs adhere to green bond principles (GBP) or the Climate Bond Initiative (CBI) standards, GS must adhere to environmental and Sharia compliance requirements in line with Islamic ethical standards (Billah & Adnan, 2024; F. H. Liu & Lai, 2021).

2.2. Green Bond/Green Sukuk Issuance in Indonesia

GB and GS have become innovative and sustainable financing instruments in Indonesia, addressing the climate crisis and environmental damage. In Indonesia, GB and GS are referred to as Environmentally Sound Debt Securities (GB) and Environmentally Sound Sukuk (GS), respectively. GB/GS are debt securities and/or Sukuk whose proceeds are used to finance or refinance environmentally sound business activities. GB/GS are part of sustainability-based debt securities and/or sukuk. The Government and Corporations issue GB/GS in Indonesia. The Indonesian government first issued a global GS in 2018, worth USD 1.25 billion, following the formulation of the Republic of Indonesia’s GB/GS Framework. This framework provides investors with the protection and comfort needed to invest in GS. This framework also provides information on the system used to evaluate and approve a project, ensuring it can be listed as a qualified green project. The system begins with identification through a budget tagging process, which involves allocating a budget to proposed green projects before they are discussed with the ministry responsible for the process.

Indonesia became the first country to issue global GS in 2018, reaching USD 7.7 billion by 2025 and becoming the world’s largest GS issuer. This sharia-based instrument is utilized to finance infrastructure projects and sustainable development, while also highlighting the Indonesian government’s commitment to environmentally friendly financing and Environmental, Social, and Governance (ESG) principles. In addition to Global GS, the government also issued its first Sustainable Development Goals (SDGs) bond in 2021, amounting to EUR 500 million with a 12-year tenor. The issuance of the SDG Bond is one form of the Indonesian Government’s commitment to sustainable development financing. In connection with the issuance of the SDG Bond, based on the Sustainability Bond Guidelines issued by the International Capital Market Association (ICMA) and the Republic of Indonesia’s SDGs Government Securities Framework, the government is obliged to prepare an annual report regarding the allocation and impact of projects financed by the issuance of the SDG Bond as a form of accountability to investors.

The first corporate bond issuance was also carried out in 2018 by PT Sarana Multi Infrastruktur (PT SMI), a State-Owned Enterprise (BUMN) under the Ministry of Finance of the Republic of Indonesia, amounting to USD 50 million. The funds raised from the Green Bond issuance were used for eligible green projects, as defined by the Green Bond Principles (GBP). Specifically, the funds were allocated for clean transportation and sustainable water projects. Subsequently, corporate GB issuance continued to increase, as reported by the Financial Services Authority (OJK), with 22 public offerings totaling IDR 36 trillion from 2022 to May 2025.

2.3. Theoretical Underpinning

According to signaling theory, GB issuance conveys to investors that the issuer is actively investing its funds in green projects and is committed to addressing climate change (Flammer, 2021). Investors have limited information to assess an issuer’s commitment to environmental issues. For publishers to overcome the problem of information asymmetry by communicating their environmental policies through the implementation of green projects to investors. Thus, issuers can build a strong reputation and convey a positive signal to investors, thereby facilitating funding that mitigates climate change risks. Investors perceive GB issuers as committed to sustainability, which can improve the company’s image and market appreciation of stock prices (Hu et al., 2021). Z. Chen et al. (2024) and J. Chen et al. (2023) demonstrate that GB issuance has a positive signaling effect by improving environmental performance and green reputation. Dell’Atti et al. (2022) suggest that GB issuance strongly signals the issuer’s commitment to a low-carbon economy.

The cost of capital theory supports GB issuance because it can reduce costs when issuers face greater funding constraints in the event of significant climate change. Furthermore, GB issuers also expect a lower cost of capital due to the positive impact of green projects on a low-carbon economy, environmental risk management, and sustainability. GB issuance must comply with stricter regulations on fund use and higher disclosure requirements, thereby increasing investor confidence (Luo & Lyu, 2025). GB investors are more focused on the corporate social responsibility and environmental commitments of the green projects they finance. Therefore, investors are willing to accept lower yield requirements for GBs than for conventional bonds, thereby lowering GBs’ cost of capital and providing an opportunity to support the transition to a greener, more sustainable economy (Ruan et al., 2025; Zerbib, 2019). Tan et al. (2022) and Tang and Zhang (2020) demonstrate that GB issuance can lower financing costs, enhance reputation, and generate positive market reactions. GB issuance can also enhance credit quality, promote tax-based incentives, and foster green awareness, thereby impacting the cost of capital (Agliardi & Agliardi, 2019).

Stakeholder theory offers valuable insights into the roles and responsibilities of various stakeholders in sustainable financing, including in the GB market context. By considering the diverse interests of stakeholders, this theory encourages the development of a GB market to mobilize capital effectively to achieve sustainable development goals. Bargaoui et al. (2025) state that GBs provide low-cost, long-term capital for funding decarbonization projects and reassure stakeholders. GB issuers, including both governments and corporations, demonstrate their commitment to mitigating climate change and enhancing benefits for all stakeholders, particularly investors. Investors expect financial returns commensurate with their social and economic responsibilities. Investors may also accept lower yields from GBs because they believe the issuer is firmly committed to sustainability and able to manage risks (Dbouk et al., 2018). Abdullah and Keshminder (2022) demonstrate that GB issuance is related to the issuer’s legitimacy and ecological responsibility.

2.4. Hypothesis Development

GBs have demonstrated their role as a crucial instrument in sustainable financing. Understanding bond characteristics and macroeconomic conditions can encourage greater GB issuance and the development of the GB market. This section examines the determinants of GB issuance discussed in the literature to support the development of research hypotheses.

2.4.1. Coupon Rate and GB Issuance

GB holders receive coupons as nominal returns on GB, which are fixed-income instruments. The coupon rate paid by the issuer can determine the number of GB issued. If the GB coupon rate is higher, the issuer will increase GB issuance to meet strong investor demand for this instrument. Investors benefit from the high GB yields from large coupon payments. Conversely, issuers desire lower coupon rates to lower their cost of capital, making GB instruments more financially comfortable. GB issuance is designed to lower issuance costs and encourage companies to issue GB, whose proceeds are exclusively used to finance environmentally and climate-friendly projects (Gianfrate & Peri, 2019). Compared to conventional bonds, GBs have a lower average coupon rate (Fatica et al., 2021). R. Zhang et al. (2021) revealed that GB issuance can lower a company’s cost of capital through three channels: (i) addressing information asymmetry; (ii) providing more liquid securities; (iii) lowering the risk borne by the bond issuer. Chiesa and Barua (2019) revealed that coupons determine the amount of GB issuance. Birzhanova et al. (2024) found that coupon rates have a significant impact on GB issuance, driven by investors’ preferences for expected returns. Gleb et al. (2025) found that high coupons are attractive to investors, thus increasing the number of GBs issued. Abhilash et al. (2024) and Grishunin et al. (2023) prove a positive relationship between the coupon rate and GB issuance. Therefore, the study tested the following hypotheses:

H1. 

The coupon rate positively affects the volume of GB issuance.

2.4.2. Maturity and GB Issuance

Maturity is the date on which the bond’s principal is repaid, plus the final coupon payment to the bondholder. Bond maturity determines the liquidity risk faced by the bond issuer. Bonds with longer maturities face higher systemic and non-systematic risks, as well as greater uncertainty about principal repayment. For investors, maturity determines the level of risk and return received from the bond. Bonds with longer maturities offer higher returns but also carry higher risks. Tomczak (2024) revealed that the closer the maturity date, the greater the liquidity of the GB. Therefore, short-term GBs generally exhibit higher liquidity compared to long-term GBs. Abhilash et al. (2023) and Q. Wang et al. (2019) found a negative relationship between maturity and bond issuance. Cicchiello et al. (2022) showed that long-term bonds lead to a decrease in bond issuance. Baldi and Pandimiglio (2022) found that maturity is negatively related to GB issuance. Based on empirical evidence, the following hypothesis is proposed.

H2. 

Longer bond maturities can reduce GB issuance.

2.4.3. Credit Ratings and GB Issuance

Credit ratings play a crucial role in bond issuance because they provide information on a bond’s quality and its issuer. Signaling theory explains the problem of information asymmetry in financial markets: investors lack the information to assess bond quality and thus rely on signals from the issuer, such as credit ratings from independent rating agencies. These agencies help provide objective information about a company’s financial credibility, default risk, and the reputation of third-party institutions. A higher bond rating is a positive signal to investors and increases demand for bonds, thereby lowering the cost of capital. Credible signals allow investors to differentiate between investment-grade and non-investment-grade bonds, thus providing confidence in their investment decisions in bond instruments.

GB ratings can assess the overall solvency of a GB issuance and also reveal additional information about the green projects being financed (Z. Li et al., 2020). A higher-rated GB indicates lower credit risk and is more attractive to investors. Investors utilize rating information to assess the likelihood of a green bond issuer defaulting on its obligations. Darmia and Kim (2024), Bužinskė and Stankevičienė (2023), and Karpf and Mandel (2018) confirm that rating is an important factor in GB issuance. Hachenberg and Schiereck (2018) highlight that companies are more likely to issue GBs with a high credit rating. Q. Wang et al. (2019) demonstrate that a higher GB rating lowers the risk of default, leading to larger GB issuances. Chiesa and Barua (2019) and Bastida et al. (2017) find that credit ratings have a positive impact on GB issuance. Therefore, we propose the following hypothesis:

H3. 

Bond ratings have a positive impact on GB issuance.

2.4.4. Green Equity and GB Issuance

Green equity is a financial instrument designed to support environmentally friendly economic activities. This instrument is gaining popularity among investors as a valuable diversification tool in sustainable investments. Green equity refers to shares of companies operating in sectors that support environmental sustainability and adopt Environmental, Social, and Governance (ESG) policies. The main advantage of green equity lies in its attractiveness within the future economy. As the world moves towards zero-carbon emissions targets and a clean energy transition, companies issuing green equity have a significant opportunity for exponential growth. The issuance of green equity in Indonesia has received a positive response from both global and domestic investors. The performance of Indonesian green equity is measured using the SRI–KEHATI Index. The SRI–KEHATI Index measures the stock price performance of 25 listed companies that have demonstrated a strong commitment to promoting sustainable businesses and ESG, known as Sustainable and Responsible Investment (SRI). The SRI–Kehati Index was launched and is managed through a collaboration between the Indonesia Stock Exchange (IDX) and the Indonesian Biodiversity Foundation (KEHATI Foundation). The SRI–KEHATI Index serves as the primary reference for investment principles that prioritize ESG issues in the Indonesian capital market. According to IDX data, the SRI–KEHATI Index has outperformed the Jakarta Composite Index (JCI) over the past five years (2019–2024), with an average annual return of 12%, exceeding the JCI’s 8%. Like GB, green equity also appeals to environmentally conscious investors because it provides capital for environmentally or climate-friendly projects. The potentially heterogeneous relationship between green equity and GB creates opportunities to hedge and promote sustainability through environmentally related investments. Chatziantoniou et al. (2022), N. Liu et al. (2021), and Pham (2021) demonstrate the interconnectedness of the green stock market and the GB market. Tiwari et al. (2022) examined the relationship between GBs, carbon prices, and renewable energy stocks, finding that GBs and energy stocks are the primary beneficiaries of the transmission of shocks from clean energy. Therefore, we test the following hypothesis:

H4. 

Green Equity has a positive impact on GB issuance.

2.4.5. Interest Rates and GB Issuance

Interest rates are a crucial macroeconomic indicator driving the development of the GB market. Changes in interest rates can determine future issuer revenues and investor attractiveness. High interest rates can raise issuers’ borrowing costs and increase the risk of default. Conversely, low interest rates can reduce financing costs and encourage issuers to issue more GB. Conversely, rising interest rates can make GB more attractive to investors, helping issuers fund environmentally friendly projects and reduce emissions (S. Zhang et al., 2020). Zerbib (2019) demonstrated that interest rates significantly determine GBs. Anh Tu et al. (2020) found that interest rates are the primary driver of GB issuance. Ozyesil and Tembelo (2025) found that high interest rates reduce the number of GBs issued. Therefore, the following hypothesis is formulated:

H5. 

Higher interest rates lead to a decrease in GB issuance.

2.4.6. Inflation and GB Issuance

Inflation reflects the credibility of monetary policy, which in turn affects the development of the GB market. High inflation rates reduce investor interest in GBs, which is a long-term financial instrument, and encourage short-term investments. Furthermore, higher inflation rates lead to lower returns and lower investor demand for GBs, thereby reducing issuance. Inflation reflects the quality of economic management and can increase the risk of default. High inflation rates can lead to macroeconomic instability, which reduces creditworthiness. Presbitero et al. (2016) found that higher inflation reduces government and corporate interest in issuing GBs due to the higher borrowing costs. Darmia and Kim (2024) show that the inflation rate affects GB issuance. Tu et al. (2020) showed that the inflation rate negatively affected investors’ decisions to invest in GB. Nickel et al. (2011) stated that rising inflation impacts macroeconomic instability and reduces creditworthiness. Gleb et al. (2025) also demonstrated that inflation negatively and significantly affects GB issuance. Therefore, the following hypothesis formulation to be tested is:

H6. 

High inflation rates have an impact on reducing the issuance of GBs.

2.4.7. Exchange Rates and GB Issuance

Exchange rates influence GB issuance because investors invest in GBs, not only domestically but also globally. Exchange rate fluctuations increase the risk premium for GBs, making them less attractive, especially to global investors. Conversely, a stable and strengthening exchange rate can encourage the development of a GB market, benefiting investors with low risk. A relatively stable exchange rate also indicates a low risk of default in the bond market, which is beneficial for investors and thus encourages the development of the GB market. Reboredo and Ugolini (2020) revealed a strong correlation between exchange rates and GB issuance. Kocaarslan (2021) showed that a strengthening USD encourages the development of the GB market and opens up opportunities for investment diversification. Chiesa and Barua (2019) confirmed that euro-denominated bonds (EUR) have a significant influence on the issuance of larger GBs. Other empirical studies also indicate that the exchange rate is positively correlated with GB issuance, primarily due to rising bond yields (Megananda et al., 2021; Santosa, 2021; Arshad et al., 2018; Nabella et al., 2025). Therefore, we propose the following hypothesis:

H7. 

The exchange rate has a positive impact on GB Issuance.

2.4.8. Oil Price and GB Issuance

Understanding the relationship between fossil fuel oil prices and GB issuance is important for two reasons: first, to support environmentally friendly initiatives and advance sustainable development. Second, to accelerate the transition to low-carbon energy sources. Investment in alternative energy sources as a substitute for fossil fuels is crucial, especially with rising oil prices. This has encouraged the issuance of GB, with the proceeds allocated mainly to developing clean energy projects (Tian et al., 2022). GB instruments also offer attractive investment options for investors, serving as a means of financing the energy transition and a hedge against market volatility. GB issuance is considered to contain value as an environmental asset, with a positive relationship to oil prices, a fossil fuel (Kanamura, 2020). The increase in oil prices encourages renewable energy investment by prompting the search for alternative energy sources as substitutes for crude oil, thereby creating opportunities for GB issuance (Marín-Rodríguez et al., 2022). Conversely, GB issuance decreases when oil prices decline, which leads to demotivation for developing renewable energy and an increased dependence on fossil fuels (Taghizadeh-Hesary et al., 2021). The case from 2014 to 2015, when oil prices fell sharply, hindered carbon mitigation initiatives due to the relatively higher cost of large-scale energy projects (Kassouri et al., 2022). In addition, the decline in oil prices reduces socially responsible investment (Sadorsky, 2014). Abakah et al. (2023) and K. H. Wang et al. (2023) analyze the relationship between oil prices and GB issuance. Rehman et al. (2023) found that oil price shocks affect changes in the GB market. Azhgaliyeva et al. (2022) found that crude oil price shocks are positively associated with GB issuance. Wei et al. (2023) proved the positive impact of oil price fluctuations on the GB market. Nazlioglu et al. (2020) showed that oil prices can predict the volume of GB issuance. Umar et al. (2024) revealed that oil prices significantly determine GB market movements. Darsono et al. (2025) found a positive correlation between oil prices and GB issuance. Therefore, oil prices are considered a potential factor determining the GB market, thus formulating the following hypothesis:

H8. 

An increase in Oil Prices can increase GB issuance.

2.4.9. Debt to GDP and GB Issuance

The debt-to-GDP ratio is a metric that compares government debt to Gross Domestic Product (GDP). This ratio measures a country’s ability to service its debt relative to its economy’s size. A high debt-to-GDP ratio indicates increasing government debt and has implications for the issuance of GBs. A high debt-to-GDP ratio indicates a growing repayment burden that must be offset by increased government revenue, particularly from taxes. Tax increases serve as a disincentive for companies to issue GBs, but for governments that increase debt, it presents an opportunity to issue more GBs, particularly to cover fiscal deficits. Several empirical studies have demonstrated a positive relationship between the debt-to-GDP ratio and bond issuance. Gill (2018) found that the deficit-to-GDP ratio is a key determinant of bond issuance. Kameda (2014) confirmed that increasing government debt can encourage governments to issue more bonds. Balima and Combes (2019) found that fiscal deficits positively impact government bond issuance. Ahwireng-Obeng and Ahwireng-Obeng (2020) showed that improving fiscal balances led to a decrease in bond issuance. Therefore, we propose the following hypothesis:

H9. 

High debt-to-GDP has an impact on greater GB issuance.

2.4.10. GDP Growth and GB Issuance

Gross domestic product (GDP) reflects a country’s economic performance and its ability to finance large-scale projects. High GDP growth indicates greater resource availability for companies and governments to fund environmentally friendly projects through GB issuance (Flammer, 2021). Therefore, economic growth is a potential driver of GB market development. Investors gain greater diversification benefits by investing in GBs in high-growth economies. Amankwa et al. (2024) show that GDP growth positively affects the bond market. Gleb et al. (2025) reveal that the effect of GDP growth on GB issuance is insignificant. The empirical literature examining the impact of GDP growth on GB issuance yields conflicting results. However, assuming higher GDP growth indicates greater availability of financial resources, this leads to increased GB issuance. Darmia and Kim (2024) show that GDP growth significantly affects GB issuance in Indonesia. S. Liu et al. (2022) demonstrate that economic development affects the volume of GB issuance. Our final hypothesis is as follows:

H10. 

GDP Growth has a positive impact on GB issuance.

3. Data and Methodology

3.1. Data

In Indonesia, sustainable financing instruments consist of Environmentally Friendly Debt Securities (GB) and/or Environmentally Friendly Sukuk (GS). Both instruments are referred to in this study as GB. GB issuance in Indonesia aims to mobilize funds from environmentally conscious investors to support the financing of sustainable projects, including renewable energy development (such as solar or wind power plants), energy efficiency projects, waste and clean water management, sustainable transportation, and green infrastructure development. To explore GB issuance, this study develops a model that can determine the size of GB issuance in the Indonesian bond market, following previous studies (Dan & Tiron-Tudor, 2021; Tolliver et al., 2020; Chiesa & Barua, 2019; Wahyuningsih et al., 2025). The study sample comprises 241 government-issued GBs and 227 corporation-issued GBs listed on the Indonesia Stock Exchange (IDX) from 1 January 2018 to 31 December 2023. GB issued by the government consists of Global GS and Sustainable Development Goals (SDGs) Bond, while Corporations issue all GB. GB issuance in Indonesia is based on the Green Bond Principles (GBP) guidelines established by the International Capital Markets Association (ICMA), which is recognized as the first international standard for GB labeling. GB issuance is also overseen by the Center for International Climate Research (CICERO).

Furthermore, the Financial Services Authority (OJK), the regulator governing the issuance of GBs in Indonesia, continues to update its regulations, most recently with OJK Regulation No. 18 of 2023, which concerns the issuance and requirements for sustainability-based debt securities and sukuk. This new regulation aims to develop the GB market in Indonesia by integrating sustainable values. Furthermore, this regulation also addresses global and ASEAN regional issues in mitigating the impacts of climate change, which is also a commitment of Indonesia in the Paris Agreement. GB issuance data and its determinants are sourced from the Indonesian Bond Market Directory published by IDX, Bank Indonesia, and Statistics Indonesia.

3.2. Methodology

This study uses a panel regression model to analyze the determinants of GB issuance. Panel regression is superior to the Ordinary Least Squares (OLS) model because it allows for the handling of heterogeneity and the observation of effects that cannot be captured through time-series or cross-sectional regression analysis (E. Su & Tokmakçıoğlu, 2023). The panel regression method in this study selects a random effects (RE) model with generalized least squares (GLS). The Breusch–Pagan LM test is used to determine whether a pooled or random-effects model is appropriate. The RE Model is more suitable for independent variables that do not vary over time, and the inclusion of dummy variables for cross-sectional fixed effects does not enable the determination of the impact of GB characteristics (Taghizadeh-Hesary et al., 2021). In addition, the use of the RE model in this study acknowledges variance between studies due to the heterogeneous nature of the dataset, following the study conducted by Khan and Vismara (2025). Several studies have used the RE model to estimate factors controlling green bond issuance, including Khiari et al. (2025), Abhilash et al. (2023), Abhilash et al. (2024), and Wahyuningsih et al. (2025). This study identifies potential determinants of GB issuance into two groups: bond characteristics and macroeconomic variables. Bond characteristics are represented by the following factors: Coupon, Maturity, and Rating, while macroeconomic indicators include Green Equity, Interest Rate, Inflation, Exchange Rate, Oil Price, Debt-to-GDP Ratio, and GDP Growth. The following is the specification of the panel regression equation for the REM model:

GB Issuance_i,t = β₀ + β₁ Coupon_i,t + β₂ Maturity_i,t + β₃ Rating_i,t + β₄ Green Equity_i,t + β₅ Interest Rate_i,t + β₆ Inflation_i,t + β₇ Exchange Rate_i,t + β₈ Oil Price_i,t + β₉ Debt to GDP_i,t + β₁₀ GDP Growth_i,t + ε_i,t

(1)

where β₀ is a constant, β_i are the regression coefficients for all explanatory variables, and μ is the error term. GB Issuance is the dependent variable, with i representing the total GB series issued, GB issued by Corporations, and GB issuance by the government, and t indicating the issuance period.

Table 1. Description of variables.

Variables	Variable Description
GB Issuance	The amount of each GB issued
Coupon	Fixed rate of return on each GB issued
Maturity	The term refers to the period from the time the GB is issued until maturity.
Rating	Debt credit ratings (AAA, A, BBB, and BBBB-) are defined as categorical variables, with corresponding values of 4, 3, 2, and 1, respectively.
Green Equity	Sustainable and Responsible Investment (SRI)–KEHATI Stock Index, known as the SRI–KEHATI Index
Interest Rate	The Bank Indonesia standard interest rate serves as the official reference for financial institutions.
Inflation	The inflation rate is calculated from changes in the Consumer Price Index.
Exchange Rate	The rupiah exchange rate against the US dollar is based on the transaction rate published by Bank Indonesia.
Oil Price	West Texas Intermediate (WTI) Crude Oil Price USD per barrel
Debt to GDP	Indonesia’s Government Debt to GDP Ratio
GDP Growth	Annual growth rate of gross domestic product

presents a description of all variables in the research model.

4. Results

4.1. Statistical Description

Table 2. Descriptive statistics.

Variable	Obs	Mean	Std.	Min	Max
GB Issuance	468	755.194	1259.580	0.750	4400.00
Coupon	468	5.498	2.047	2.300	11.000
Maturity	468	6.485	6.509	1.000	30.000
Rating	468	2.679	1.259	1.000	4.000
Green Equity	468	5.980	0.115	5.652	6.100
Interest Rate	468	4.942	1.021	3.500	6.000
Inflation	468	3.231	1.346	1.320	5.950
Exchange Rate	468	14,896	565.851	13,662	16,367
Oil Price	468	73.341	17.585	18.840	114.67
Debt to GDP	468	36.137	3.673	30.070	39.350
GDP Growth	468	4.099	2.318	−2.100	5.310

presents descriptive statistics of the variables estimated in the research model. The average amount of GBs issued was 755 billion rupiah, with a value range of 0.75 to 4400 billion rupiah. This figure indicates a significant gap in the number of GBs issued by corporations and governments in the sample. GB coupons have an average interest rate of 5.5%, which is higher than the average interest rate and inflation rate of 4.94% and 3.23%, respectively. Bond ratings had an average of 2.68, with a minimum value of 1 and a maximum of 4, indicating that most GBs issued were rated A. Green equity, proxied by the logarithm of the Sri–Kehati Stock Index, had an average of 5.980, with a minimum value of 5.653 and a maximum of 6.100. The average exchange rate of the rupiah against the United States Dollar (USD) was Rp. 14,896/USD, indicating a tendency for the rupiah to depreciate during the study period. Oil prices range from $18.85 to $114.67 per barrel, with an average of $72.34. The average debt-to-GDP ratio is 36.18%, with a minimum of 30.07% and a maximum of 39.35%. Finally, GDP growth averaged 4.1% in 2020, with a negative growth of 2.1% due to the COVID-19 pandemic.

Table 3. Correlation analysis.

Variable	1	2	3	4	5	6	7	8	9	10	11
1. Issue Size	1
2. Coupon	0.734	1
3. Maturity	−0.371	−0.272	1
4. Rating	0.819	0.679	−0.254	1
5. Green Equity	0.291	0.125	0.053	0.160	1
6. Interest Rate	0.320	0.219	−0.078	0.199	0.560	1
7. Inflation	0.172	−0.004	0.070	0.071	0.569	0.343	1
8. Exchange Rate	0.306	0.167	0.010	0.175	0.435	0.437	0.409	1
9. Oil Price	0.110	−0.035	0.169	0.051	0.693	0.047	0.388	0.248	1
10. Debt to GDP	0.146	0.188	−0.113	0.093	−0.042	0.520	−0.318	0.082	−0.419	1
11. GDP Growth	0.174	0.060	0.099	0.097	0.733	0.345	0.462	0.271	0.789	−0.330	1

presents the correlation matrix for both dependent and independent variables. Positive correlations dominate the relationships between variables, indicating that most determinants of GB issuance move in the same direction. Furthermore, most correlation coefficients between variables are low, so multicollinearity is not a concern in the estimated panel regression model. The strongest relationships are indicated by the positive correlations between Rating and GB Issuance (81.9%) and between Coupon and GB Issuance (73.4%). This relationship suggests that a better credit rating and a higher coupon can increase the number of GBs issued. The negative correlation between Maturity and Issue Size at 37.1% is also higher than all macroeconomic variables. These results indicate that bond characteristics are more closely related to GB issuance than macroeconomic indicators. The weakest relationship is observed between inflation and coupons, with a negative correlation coefficient of 0.4%.

4.2. Panel Regression Model Analysis

Table 4. Breusch–Pagan LM.

Sample	Statistics	Prob.
All GB	1209.858	0.0000
GB Corporate Issued	169.9689	0.0000
GB Government Issued	201.8310	0.0000

presents the results of the Breusch–Pagan LM test for the three research samples, all with a probability of 0.0000. A p-value less than 0.05 indicates that the RE model is selected to estimate the determinants of GB issuance.

Table 5. The RE Model Estimation results of Equation (1).

Variables	(1) All GB	(2) Corporate Issued	(3) Government Issued
Coupon	0.505 *	−0.135 ***	1.729 *
	(0.082)	(0.080)	(0.031)
Maturity	−0.088 *	−0.265 *	−0.080 *
	(0.005)	(0.057)	(0.002)
Rating	1.430 *	2.331 *	2.075 *
	(0.103)	(0.349)	(0.069)
Green Equity	1.889 ***	3.313 *	−1.360 **
	(1.014)	(0.995)	(0.543)
Interest Rate	0.073	−0.274 *	0.712 *
	(0.131)	(0.096)	(0.058)
Inflation	0.176 **	0.051	0.007
	(0.069)	(0.055)	(0.046)
Exchange Rate	0.001 *	0.001 *	−0.000 *
	(0.000)	(0.000)	(0.000)
Oil Price	0.826 **	0.444	−0.094
	(0.356)	(0.373)	(0.158)
Debt to GDP	0.045	0.069 *	−0.021 ***
	(0.028)	(0.024)	(0.011)
GDP Growth	−0.041	0.008	0.010
	(0.037)	(0.047)	(0.017)
Constant	−6.778	−13.136 **	24.292 *
	(5.593)	(6.443)	(3.331)
R Squared	0.780	0.650	0.861
Adjusted R-squared	0.776	0.634	0.855
F-Statistic	162.318	40.155	142.505
Prob (F-statistic)	0.000 *	0.000 *	0.000 *
No. of Observations	468	227	241

Notes: Significance level * = 1%, ** = 5%, and *** = 10%. Figures within parentheses indicate standard errors.

presents the results of the generalized least squares estimation of the RE Model. The test results cover three models: total GB issuance (column 1), GB issued by corporations (column 2), and GB issuance by the government (column 3). The R-squared test results indicate that the correlation between the value and the determinants of total GB issuance explains 78% of the variation in issue size. The F-test is also significant at a 99 percent confidence level, indicating that the factors included in the analysis collectively determine total GB issuance. Partial testing (t-test) shows that the coupon rate, rating, green equity, inflation, exchange rate, and oil price have a positive impact on total GB issuance, while maturity has a negative impact. However, the interest rate, debt-to-GDP ratio, and GDP growth have the expected signs but are not statistically significant.

R-squared: The value for factors controlling corporate GB issuance indicates that 65% of the variation in issue size is explained by the factors included in the analysis. The F-test is also significant at a 99 percent confidence level, indicating that the factors included in the analysis collectively determine corporate GB issuance. Partial testing (t-test) reveals that rating, green equity, exchange rate, and debt-to-GDP have a positive impact on GB issuance. In contrast, coupon, maturity, and interest rate have a negative impact. However, inflation, oil prices, and GDP growth have no significant impact on the economy. R-squared: The value for factors controlling government-issued GBs indicates that the included factors explain 86% of the variation in issue size. The F-test is also significant at a 99 percent confidence level, indicating that the factors included in the analysis collectively determine GB issuance. Partial testing (t-tests) indicates that the coupon rate, rating, interest rate, and exchange rate have a positive impact on GB issuance. In contrast, maturity, green equity, and debt-to-GDP have a negative impact. However, inflation, oil prices, and GDP growth have no significant impact on the economy. GDP growth consistently across the three models does not affect GB issuance.

The determinants of GB issuance by both corporations and governments yielded different results. The coupon rate had a negative, significant relationship with corporate GB issuance, contrary to expectations. For the government, the findings that were not in line with expectations included the negative impact of the exchange rate and debt-to-GDP ratio on GB issue size. Three characteristic factors—Coupon, Maturity, and Rating—had a significant influence on GB issuance, while the impact of the seven macroeconomic variables varied. Bond rating and green equity were the strongest determinants, followed by other factors analyzed in GB issuance by both corporations and governments. The rating coefficients were 1.430, 2.331, and 2.075, respectively, with a p-value of <0.01. The GE coefficients were 1.889 (p < 0.10), 3.313 (p < 0.001), and −1.360 (p < 0.05) for total GB issuance, corporate issuance, and government issuance, respectively. The coefficient for credit rating in corporate GB issuance of 2.331 indicates that a one-level increase in GB rating increases the number of GB issued by corporations by 2.33 percent. The coefficient for green equity in corporate GB issuance of 3.313 indicates that a 1% increase in the green equity index leads to a 3.31% increase in corporate GB issuance.

4.3. Robustness Test

To ensure the robustness of the core findings, this study conducted robustness tests using the generalized method of moments (GMM). The GMM model can address endogeneity, heteroscedasticity, autocorrelated errors, and random-effects priors (Alamgir & Cheng, 2023). Endogeneity issues can arise from imprecise measurement and omitted-variable bias and, if not adequately addressed, can produce biased and inconsistent estimates. GMM can address endogeneity by using instrumental variables that are correlated only with the endogenous regressors and uncorrelated with the error term (Arhinful & Radmehr, 2023). GMM corrects for endogeneity and reverse causality, resulting in consistent and unbiased coefficient estimates. Utilizing GMM to re-estimate the model provides a robust cross-validation method, allowing for the assessment of the stability and generalizability of key findings regarding the determinants of GB issuance. Therefore, the use of the GMM model in this study promises a more accurate and robust assessment of the relationship between bond characteristics, macroeconomic variables, and GB issuance.

Table 6. Robustness check using the GMM model.

Variables	(1) All GB	(2) Corporate Issued	(3) Government Issued
Coupon	0.362 *	−0.348 *	1.632 *
	(0.021)	(0.060)	(0.003)
Maturity	−0.098 *	−0.081 ***	−0.082 *
	(0.005)	(0.048)	(0.000)
Rating	1.475 *	1.576 *	2.274 *
	(0.041)	(0.332)	(0.021)
Green Equity	1.897 ***	3.572 *	−0.514 **
	(0.961)	(0.507)	(0.180)
Interest Rate	0.107	−0.297 *	0.066 **
	(0.091)	(0.078)	(0.025)
Inflation	0.184 **	−0.026	−0.006
	(0.069)	(0.027)	(0.005)
Exchange Rate	0.001 *	0.001 *	−0.000 *
	(0.000)	(0.000)	(0.000)
Oil Price	0.643 *	0.100	−0.006
	(0.323)	(0.181)	(0.045)
Debt to GDP	0.064 **	0.070*	−0.012 **
	(0.031)	(0.014)	(0.005)
GDP Growth	−0.024	0.033	0.004
	(0.030)	(0.025)	(0.005)
Constant	−6.143	−8.112 ***	16.711 *
	(4.326)	(4.611)	(1.108)
R Squared	0.947	0.875	0.996
Adjusted R-squared	0.946	0.870	0.996
F-Statistic	240.414	216.000	230.000
Prob (F-statistic)	0.000 *	0.000 *	0.000 *
No. of Observations	468	227	241

Notes: Significance level * = 1%, ** = 5%, and *** = 10%. Figures within parentheses indicate standard errors.

presents the GMM estimation results for the three GB issuance research samples, which confirm the main findings and are consistent with those from the previous RE model panel data analysis, thereby increasing the reliability of the identified parameters. The variable coefficient values mostly indicate a greater influence of the factors controlling GB issuance. For example, the coefficient for the green stock market as a determinant of corporate GB issuance increased from 3.313 to 3.572. The coefficient for bond ratings as a determinant of government GB issuance increased from 2.075 to 2.274. Goodness-of-fit tests indicate a significant increase in the model’s explanatory power. For the total GB issuance sample, it increased from 0.78 to 0.95; for government GBs, from 0.86 to 0.99; and for corporate GBs, from 0.65 to 0.87. This robustness test provides a clearer picture of the relationships among variables, thereby increasing confidence that bond characteristics and macroeconomic indicators are the main factors controlling GB issuance by both government and corporate entities. These results are in line with the findings of Chiesa and Barua (2019), Grishunin et al. (2023), Tolliver et al. (2020), and Broadstock and Cheng (2019).

5. Discussion

This study analyzes two groups of potential factors determining GB issuance in Indonesia: bond characteristics and macroeconomic indicators. From a bond characteristics perspective, all three factors—coupon, rating, and maturity—significantly influence the issuance of GBs. Macroeconomic variables have different impacts on the number of GBs issued by both corporations and governments. Ratings consistently show a strong, significant positive relationship with GB issuance by both corporations and governments. This study aligns with the findings of Chiesa and Barua (2019), who also demonstrated that ratings are the most significant and positive factor controlling GB issuance. This suggests that a higher bond rating indicates security and creditworthiness, thus encouraging greater GB issuance. Ratings provide information in assessing the issuer’s ability to meet its obligations and the likelihood of default.

Additionally, ratings can reduce information asymmetry and the costs associated with issuing GBs. A higher rating improves the issuer’s creditworthiness, thus increasing investor demand for GBs. Therefore, investors can focus on ratings, which are an important attribute in assessing collateral and alleviating concerns about default risk. Dorfleitner et al. (2022) found that investors tend to prefer bonds with high credit ratings. Dan and Tiron-Tudor (2021) found that bond credit ratings positively affect the size of GB issuance. Q. Wang et al. (2019) examined the impact of ratings on the risk premiums associated with GB issuance and found a significant negative relationship. Higher credit ratings indicate a lower default risk and a lower GB issuance risk premium. The Indonesian GB market is still in its infancy, and investors lack robust evaluation tools for investment decision-making. The research findings are relevant as to why ratings have a strong influence on GB issuance. Therefore, GB issuers are encouraged to upgrade their ratings to increase funding for sustainable projects. Z. Li et al. (2020) revealed that GB is a new financial instrument, that investors have limited information to identify its potential risks, and that ratings are a helpful reference.

Regarding bond characteristics, coupon and maturity also significantly influence GB issuance. For coupons, the impact differs between corporate and government issuances. Companies with higher coupon payments increase the cost of capital, thus tending to issue fewer GB. These results support the findings of Chiesa and Barua (2019) and Q. Wang et al. (2019), which show that lower coupons encourage companies to issue GBs. Conversely, governments dominated by GS Global offer higher coupons to attract foreign investors. With coupon rates between 5% and 6%, which are higher than bank deposit rates, GS Global issuance has led to oversubscription for each issuance series. This finding is consistent with Abhilash et al. (2024), who stated that coupon rates have a positive impact on GB issuance.

Maturity was negatively associated with GB issuance, indicating that longer maturities were associated with lower GB issuance. According to interest rate structure theory, long maturities increase bond liquidity risk because of uncertainty about interest rate changes that affect bond payments at maturity. Therefore, longer maturities can reduce investor interest in GBs and increase the cost of issuing GBs. These results are consistent with those of Abhilash et al. (2023) and Cicchiello et al. (2022), who found that maturity negatively affects GB issuance. Q. Wang et al. (2019) revealed a negative impact of maturity on the risk premium of GB issuance. Jankovic et al. (2022) and Taghizadeh-Hesary et al. (2021) found a different result, indicating that GB maturity has a positive impact on bond yields. Zerbib (2019), and Chiesa and Barua (2019) presented conflicting evidence, indicating that bond maturity does not affect GB issuance.

The estimation results show a substantial positive impact of the green equity market, as measured by the Sri–Kehati Index, on corporate GB issuance, but the opposite impact on government GB issuance. In total GB issuance, the SRI–KEHATI index contributes to increasing the number of GB issuances. These results support the findings of N. Liu et al. (2021) and Hasan et al. (2024), which demonstrated a strong positive relationship between green equity and GB. Pham (2021) showed a weak relationship between green equity and green bonds under normal conditions, but a stronger relationship under extreme conditions. Y. Zhang and Umair (2023) found a significant dynamic spillover effect between renewable energy stocks and GBs. Ren et al. (2022) demonstrated that the carbon market has a positive impact on the GB index in the medium- to long-term, but it is unstable in the short term. Contrary results were revealed by Park et al. (2020), who found no significant results.

Research findings indicate that oil prices are a significant positive factor in total GB issuance. Rising fossil fuel oil prices provide investors with opportunities to access renewable energy alternatives financed through GB issuance. K. H. Wang et al. (2023) support our findings that oil prices determine the prospects of the GB market and the growth of GB issuance, particularly as oil prices rise. Mokni et al. (2022) demonstrate that high oil price shocks impact GB issuance, which serves as a strong hedge and haven. Azhgaliyeva et al. (2022) demonstrate that oil price shocks positively impact corporate GB issuance. Broadstock and Cheng (2019) find that the GB market responds positively to rising oil prices. C. W. Su et al. (2023) and Darsono et al. (2025) demonstrate that rising oil prices initially foster growth in the GB market, but have the opposite effect in the long term. Umar et al. (2024) reveal a low correlation between oil price shocks and GBs. C. C. Lee et al. (2021) demonstrate that the correlation between oil prices and the GB market varies across different risk exposures. Huang et al. (2022), H. Li et al. (2022), and Kanamura (2020) present different findings, indicating that rising oil prices lead to a reduction in GB issuance.

Inflation is an important indicator that impacts economic stability and affects GB issuance. Our estimates show that inflation has a positive impact on total GB issuance. On the one hand, rising inflation benefits companies by increasing production capacity and requiring substantial investment funding. On the other hand, high inflation leads to increased government spending. Increased investment spending by companies and governments requires substantial funding, which can be achieved through GB issuance. Conclusions from empirical literature on the impact of inflation on GB issuance vary widely. For example, Dan and Tiron-Tudor (2021) found that rising inflation leads to increased GB issuance, while Grishunin et al. (2023) found that inflation is associated with a lower probability of GB issuance. Tu et al. (2020) and Nanayakkara and Colombage (2019) also found a negative relationship between inflation and corporate GB issuance. Fatmawatie et al. (2024) actually showed that inflation is unrelated to bond issuance. The following reasons may explain these varying findings. Higher inflation makes bond interest rates less valuable in the future, which reduces investor demand for bonds and, consequently, fewer bonds are issued. Conversely, if inflation is expected to decline, issuers will supply more bonds because they anticipate paying lower interest rates. According to the law of supply and demand in the GB market, high GB issuance and low demand cause bond prices to fall and coupon rates to rise. Furthermore, if interest rates rise, demand increases, leading to adjustments in the issuance of GBs (Jolović et al., 2024). Therefore, we can conclude that changes in rates can influence GB issuance. Furthermore, GB instruments are a profitable investment option for investors during periods of inflation because they support sustainable projects whose value increases over time.

Regarding interest rates, research indicates that rising rates lead to a decrease in corporate GB issuance, while higher rates increase government issuance. Rising interest rates can increase borrowing costs for companies, prompting them to seek more affordable financing options. The research findings align with those of Ozyesil and Tembelo (2025) and Zerbib (2019), who demonstrated that interest rates negatively affect GB issuance. For government bond issuance, rising interest rates increase bond yields, which in turn increase investor demand for government bonds. The research findings align with those of Nguyen and Nguyen (2022), who demonstrated a positive relationship between interest rates and government bond issuance. Amankwa et al. (2024) found that interest rates improve bond market performance.

Regarding the exchange rate, the research results revealed a positive correlation with GB issuance. The depreciation of the rupiah against the USD makes GB prices more attractive, especially to foreign investors, thereby increasing demand for GBs and improving market liquidity. In the context of the Indonesian economy, the recent weakening of the rupiah exchange rate can reduce the risk for investors investing in the GB market. This finding aligns with the results of Chiesa and Barua (2019), who confirmed that bonds denominated in foreign currencies, particularly USD, garner greater confidence from global investors investing in the GB market. This finding aligns with Darsono et al. (2025) and Adekoya et al. (2023), who revealed that the exchange rate has a positive impact on the GB market. Amankwa et al. (2024) demonstrated that the exchange rate has a negative long-term impact on the bond market, but a positive short-term relationship. Tu et al. (2020) found that the exchange rate is an insignificant factor in GB growth. Gao et al. (2021) found that the foreign exchange market has a weak relationship with the GB market.

The government considers exchange rate trends in issuing GBs, which are dominated by Global GS instruments marketed on global debt markets and purchased by international investors. Research findings reveal a negative impact of the US dollar exchange rate on government GB issuance. The depreciation of the rupiah against the USD makes GB prices more attractive to foreign investors, thereby increasing GB demand and improving market liquidity. Furthermore, the strengthening of foreign currencies against the local currency allows the government to obtain greater funds when loans are converted from US dollars to rupiah to finance national projects. The recent weakening of the rupiah against foreign currencies has prompted the government to issue larger amounts of GBs in non-domestic currencies. The research findings align with those of Chiesa and Barua (2019), who found that foreign currency-denominated bonds, particularly those denominated in USD, garner greater confidence from global investors investing in the GB market. Amankwa et al. (2024) demonstrated that exchange rates have a long-term negative impact on the bond market, but exhibit a short-term positive relationship. Different findings confirm the positive impact of the exchange rate on corporate bond issuance. The rupiah’s appreciation against the US dollar encourages corporations to issue more bonds in the domestic bond market. Darsono et al. (2025) and Adekoya et al. (2023) support this finding, stating that the exchange rate positively affects corporate bond issuance. Tu et al. (2020) found that the exchange rate is an insignificant factor in bond issuance. Gao et al. (2021) found that the foreign exchange market has a weak relationship with the bond market. Therefore, it is essential for issuers, both government and corporate, to consider exchange rate volatility when selecting the currency for bond issuance.

The debt-to-GDP (D/GDP) ratio significantly influences debt issuance, with different signs for governments and corporations. For corporations concerned with business sustainability, debt issuance is a viable financing option if their debt needs increase. Our results are consistent with those of Dan and Tiron-Tudor (2021), who found that debt is a viable instrument for deficit financing. Conversely, governments, faced with increasingly pressing debt needs due to budget deficits, tend to seek alternative funding sources other than debt issuance. Poghosyan (2014) showed that an increase in the government debt-to-GDP ratio increases bond issuance through higher yields. Presbitero et al. (2016) demonstrated that public debt is a significant factor in government bond issuance in developing countries.

The analyzed GDP growth has the expected sign, namely positive, indicating an increase in the volume of GB issuance by the government and corporations, but the effect is not statistically significant. This is understandable, given that during the study period, from 2018 to 2023, Indonesia’s economic growth tended to stagnate, except in 2021, when it contracted due to the COVID-19 pandemic. Jänicke (2012) found that countries with high GDP tend to prioritize economic growth over environmental concerns and invest less in environmental protection to expand the GB market. The study’s findings differ from those of Ozyesil and Tembelo (2025) and Grishunin et al. (2023), who demonstrated that GDP growth has a positive impact on GB issuance. High GDP growth in countries issuing GBs generates higher bond returns, thus increasing demand for GBs. Flammer (2021) revealed that high economic growth encourages governments to issue more and larger GBs to finance environmentally friendly and sustainable projects. Abhilash et al. (2024) proved a negative relationship between GDP and GB issuance.

6. Conclusions

This study aims to investigate the factors determining GB issuance in Indonesia. Our analysis demonstrates that bond characteristics and macroeconomic indicators significantly influence GB issuance. Other important estimation results reveal differences in the impact of certain factors on GB issuance. For example, an increase in coupons reduces the number of GBs issued by corporations, but the opposite effect is found for the government. Findings on three bond characteristics—coupon, rating, and maturity—show significant relationships with GB issuance. Rating is the strongest factor determining the number of GBs issued. Ratings are important for both governments and corporations in issuing GBs to attract investor interest and confidence, thereby increasing the value of their investments. The macroeconomic variable with the strongest relationship to GB issuance is green equity, but the impact differs between corporations and the government. The strengthening of the green stock market, which implements sustainable and responsible investment (SRI) principles, has driven increased corporate GB issuance and simultaneously developed the Indonesian capital market. Another important finding is that oil prices and the exchange rate positively affect the number of GBs issued. Rising oil prices can reduce fossil fuel consumption, thus providing opportunities for greater GB issuance. Bond issuance is necessary to finance investments that can increase Indonesia’s clean energy capacity and reduce dependence on fossil fuels. The appreciation of foreign exchange rates against the rupiah provides the government with an opportunity to increase the number of global bonds issued on international financial markets. In addition to the dual benefits that global investors derive from investing in bonds, this also helps Indonesia reduce greenhouse gas emissions, build a more sustainable economy, and create a better future, not only for all Indonesians but also for the world at large.

The research results provide several important implications. Theoretically, this study contributes to the sustainable finance literature, particularly about the role of the green stock market and oil prices as important determinants of GB issuance. Practical implications provide policymakers, issuers, and investors with an understanding of the factors controlling GB issuance, which can help them foster the development of the GB market and sustainable finance. For GB issuers and investors, the primary driving factors for GB issuance are bond characteristics, particularly credit ratings, as well as macroeconomic indicators, including green stocks and global oil prices. Regarding oil prices, government subsidy policies should be limited to reduce fossil fuel consumption and to encourage green financing for renewable energy development. Furthermore, the government should provide incentives for issuers and investors to increase their motivation to actively participate in driving higher growth of the GB market. For capital market managers, the development of green stocks is a crucial concern because investor interest in GBs aligns with their investment in the green stock market. For investors, bond characteristics and macroeconomic variables are key factors to consider when making investment decisions for GB instruments.

This study has limitations and provides suggestions for future research. First, the controlling factors for GB issuance only cover bond characteristics and macroeconomic variables. Further research could examine broader and more specific factors, such as issuer financial performance, sustainability performance, and government policies supporting GB development. Second, this study focuses on the Indonesian GB market, which is relatively new and has limited the number of GB issuances. Future research could explore GB markets in other countries, particularly developing countries where GB issuance continues to increase. Thus, further studies could provide new perspectives on differences in bond market development, specific GB taxonomies, carbon markets, and green regulations. Third, this study did not investigate the impact of GB issuance on economic performance, capital markets, and the environment. One of the most highlighted performance areas for further investigation is the impact of GB issuance on environmental benefits and protection. Furthermore, the impact of GB issuance on economic growth and the green stock market is also an interesting future research agenda. Finally, in line with the increasingly rapid development of the GB market, further research would be interesting to investigate the relationship between GB issuance and emerging issues in sustainable finance. These issues include: green investor preferences, green innovation, hedging, uncertainty, and greenwashing practices.