Legal Systems, National Governance and Renewable Energy Investment: Evidence from Around the World

Abstract This paper examines renewable energy (RE) investment and the role of a country's legal system in shaping investment decisions. Analysing data from 236 renewable energy companies between 2000 and 2017 across the world, our study establishes that those in a common law system are more responsive to growth opportunities in RE investment, while facing greater financial constraints than their counterparts in civil law systems. Our study demonstrates that the global imbalance in RE development is caused by the influence of a country's legal system, which determines the regulatory and business ethos that impacts on the trajectory of investment, and by the varying degrees of accountability implicit in a country's governance environment. Our research raises the implication that the opportunity costs of forgone economic gains are in direct conflict with long‐term environmental goals, retarding the transition from carbon‐based to sustainable sources of energy, and provides insights into how development can be stimulated by fiscal incentives, favourable regulations, societal engagement, improved access to finance and the alignment of national strategies. Our findings contribute to the economic literature of legal origin theory and establish fundamental principles for refining global RE development strategy and confronting the challenge of climate change.

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