This thesis examines the complex field of climate finance, focusing on the roles of policymakers, investors, and firms. It begins by exploring the implications of climate policy coordination for financial markets. The thesis first examines the Common Ground Taxonomy (CGT), which harmonises EU-China green taxonomy standards. The analysis reveals that CGT-aligned green bonds attract significantly more international capital and generate positive spillover effects in corporate green bond markets, demonstrating that cross-jurisdictional taxonomy alignment reduces information frictions and unlocks substantial pricing benefits for CGT-aligned issuers.

The thesis then investigates how corporate net-zero commitments (NZC) influence the carbon risk premium. It finds a robust positive carbon risk premium linked to GHG emission intensity. Critically, NZC represent a double-edged sword: firms with high transition readiness experience reduced carbon risk premiums post-NZC, while those lacking readiness face elevated premiums. These findings highlight the need for policymakers to support robust transition strategies.

Finally, the thesis develops a novel expenditure-based greenwashing risk measure. This forward-looking metric, which quantifies shortfalls between expected and actual environmental expenditures, captures better the genuine abatement commitment than existing outcome-based approaches used in the literature. High greenwashing risk might trigger inflows from institutional investors and spill over to the broader banking sector via green-loan-green-bond substitution. These findings advocate for enhanced monitoring mechanisms to safeguard the integrity of green finance instruments.

In conclusion, the thesis provides valuable insights and policy recommendations to strengthen the effectiveness and growth of climate finance. By linking policy design, firm behaviour, and investor responses, it provides a comprehensive framework for scaling credible climate finance while safeguarding financial stability.