It has been confirmed that sustainable investments contributing to environmental protection can benefit from the deterioration of air pollution, but this influence mechanism has not been fully discussed. This paper proposes a mediation model to study air pollution's influence on green bonds. Theoretically, air pollution raises public environmental awareness and perceptions of physical health risks, leading to increased public concern. Enhanced public concern drives investors' green preference and environmental responsibility, thus expanding green bond demand. Our studies show air pollution is significantly positive related to public concern. Public concern positively links with green bond investment willingness, resulting in increased volatility. The total positive effect of air pollution on green bond is partly absorbed by the effect of public concern. These findings confirm the mediation role of public concern. In addition, major crisis events (e.g., COVID-19) may hinder the mediation process by generating a negative trend and distracting the public.
Environmental change is an important factor influencing green investment, and it affects green assets through green preference. However, this influence mechanism has not been studied on green bonds. This study adopts the threshold effect model to analyze the impact of air pollution levels on the green bond market. Theoretically, environmental perception will trigger green investment through green preference, whereas the role of green preference is affected by air pollution level. Namely, there is a threshold effect of air pollution. Only when the level of air pollution exceeds a certain threshold can green preference change investor behavior. The empirical results confirm this mechanism: at low air pollution levels, weak physical stimuli are not sufficient to induce strong environmental perceptions, resulting in insignificant role of green preference; when air pollution exceeds the threshold, the effect of air pollution becomes significantly positive due to enhanced environmental perceptions. In addition, major crisis events (e.g. COVID-19) may weaken the role of green preferences by distracting investors, leading to insignificant impact of air pollution on green bonds after the epidemic. This paper's findings mean that enterprises can use green preference to achieve transformation; while the government may also take different measures to promote green finance.
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