research topics in sustainable finance

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• Published: 20 December 2023

Emerging new themes in green finance: a systematic literature review

• H. M. N. K. Mudalige   ORCID: orcid.org/0000-0002-4497-4750 1  

Future Business Journal volume  9 , Article number:  108 ( 2023 ) Cite this article

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There is a need for an extensive understanding of the emerging themes and trends within the domain of green finance, which is still evolving. By conducting a systematic literature review on green finance, the purpose of this study is to identify the emerging themes that have garnered significant attention over the past 12 years. In order to identify the emerging themes in green finance, bibliometric analysis was performed on 978 publications that were published between 2011 and 2023 and were taken from the databases of Scopus and Web of Science. The author examined annual scientific production, journal distribution, countries scientific production, most relevant authors, most frequent words, areas where empirical research is lacking, words' frequency over time, trend topics, and themes of green finance. The outcome of the review identified the following seven themes: (i) green finance and environmental sustainability; (ii) green finance and investments; (iii) green finance and innovation; (iv) green finance policy/green credit guidelines; (v) green finance and economy; (vi) green finance and corporate social responsibility; (vii)trends/challenges/barriers/awareness of green finance. The analysis of these emerging themes will contribute to the existing corpus of knowledge and provide valuable insights into the landscape of green finance as it evolves.

Introduction

Cities will face their greatest challenges ever during the next 30 years, and three-quarters of the world's population will reside in urban areas by 2050 due to the unparalleled rate of urbanization as a result of population growth, resource scarcity, such as peak oil, water shortages, and food security [ 100 ].

One of the main challenges in building and maintaining sustainable cities is discovering the sources required to fund vital infrastructure, development, and maintenance activities that have a sustainable future. To achieve the creation of sustainable cities, there is a need for green projects via green financial bonds, green banks, carbon market tools, other new financial instruments, new policies, fiscal policy, a green central bank, fintech, community-based green funds, and expanding the financing of investments that provide environmental benefits [ 26 , 78 ].

It is evident that green financing plays a crucial role in promoting sustainable initiatives. Thus, a transition from a rising economy to a green economy necessitates that a country's leadership offers green financing [ 112 ]. To assure green economic growth, nations around the world have invested in green projects to promote, invent, and employ environmentally friendly technologies to safeguard the environment and maximize environmental performance [ 55 ]. Because of new stakeholders' and institutions' understanding of environmental issues, regulatory authorities are likely to seek out extra ecologically acceptable financial resources. In an effort to establish environmental legitimacy, this type of environmental proactivity will be required when new methods of providing financial resources and green financing arise.

In numerous ways, the impact of adopting green financing is proven. First, green finance provides financial support for firms engaged in green innovation, including the purchase of green equipment, the introduction of new environmentally efficient technologies, and the training of their personnel. Second, green funding from various projects can assist stakeholders (organizations, governments, and regulators) in spending R&D funds on environmental challenges and minimize the associated risk with green legislation. Lastly, green policies have higher costs than conventional practices, and green finance can assist an organization in covering these expenses without encountering significant financial obstacles. As a result, green finance-driven economic growth can significantly support green policies, lessen environmental pollution, and build sustainable cities [ 128 ].

There have previously been systematic literature reviews conducted in the green finance area. However, a study's reliance on one database can exclude some recent developments in green finance from its analysis [ 93 ]. Findings from several databases could be compared and contrasted to create a more all-encompassing view of the area. Therefore, this study focuses on using Scopus and WoS databases.

Though additional methods, such as systematic literature reviews (SLR) and more complex network analyses such as co-occurrence of index terms, citations, co-citations, and bibliometric coupling, are available, previously conducted studies used a fundamental bibliometric technique [ 23 ]. A more detailed picture of the green finance study setting may emerge from an examination of the identification of various themes.

As part of a systematic review of the literature concerning emerging trends in green finance, it is critical to ascertain the dominant themes that are present in the field. By adopting this methodology, an intentional emphasis is placed on maintaining the review's relevance and excluding any studies that are obsolete. In addition, by identifying and classifying these themes, one can gain significant knowledge regarding the ever-changing characteristics of green finance, thereby illuminating the latest advancements and patterns. A study conducted by Pasupuleti and Ayyagari [ 99 ] identified different themes in green finance, but the researchers were only focused on polluting companies. By amalgamating insights from the literature review, one can attain a holistic comprehension of the current state of research in the field of green finance. Additionally, this process identifies areas where additional inquiry is necessary. Engaging in such an undertaking provides advantages not only to the scholarly community but also carries practical implications for policymakers, practitioners, and investors, assisting them in formulating effective policies and investment strategies and making well-informed decisions.

Green finance research is growing rapidly. However, the rising themes and trends in green finance literature must be comprehended. A comprehensive literature review can summarize current knowledge, identify research gaps, and identify the field's most relevant topics. This study seeks to uncover green finance's emerging themes through a rigorous literature review. This research aims to advance green finance knowledge by synthesizing and analyzing a wide range of scholarly articles.

Methods and methodology

Study selection process and methods.

In this study, a systematic literature review (SLR) was applied. It used inclusion criteria, analysis techniques, and a more objective method of article selection. As recommended for SLRs [ 65 ] with regard to the article selection process, the PRISMA article selection steps were adhered to. The steps are "identification," "screening," and "included". The steps that were taken in this study are shown in Fig.  1 .

PRISMA article selection flow diagram. Note : Search algorithm; “green finance” . Sources (s) Authors Construct, 2023

In the identification phase, the search terms, search criteria, databases, and data extraction technique are chosen. The keyword to use in the search was "green finance" as the study is aimed at identifying emerging themes in green finance.

The identified articles need to be screened in accordance with the PRISMA guidelines. The tasks carried out at the screening were the screening, retrieval, and evaluation of each article's eligibility. According to Priyashantha et al. in [ 103 ], articles in each task that did not meet the inclusion criteria were removed. The "empirical studies" published in "Journals" from "2011–2023" in "English" were the inclusion criteria for screening the articles. In 2023, up to May, the journal articles were chosen.

This screening was carried out both manually and automatically. Utilizing Scopus' and Web of Science's (WoS) automatic article screening features by study type, language, report type, and publication date, articles achieving the inclusion criteria "empirical studies" published in "English" "journals" from "2011–2023″ were included. The other publication types such as conference papers, book chapters, reviews, research notes, editor's comments, short surveys, and unpublished data, as well as non-English articles and articles published within the considered year range, were excluded. The full versions of the screened articles were then retrieved for the eligibility assessment, the next stage of screening. The author manually evaluated each article's eligibility.

Study risk of bias assessment

Researcher bias in article selection and analysis lowers the quality of reviews [ 8 , 102 ]. Avoiding bias in article selection and analysis requires using a review protocol, adhering to a systematic, objective article selection procedure, using objective analysis methods [ 8 , 102 ], and performing a parallel independent quality assessment of articles by two or more researchers [ 8 ]. By adhering to all of these requirements, the risk of bias in the articles was removed.

Methods of analysis

Biblioshiny and VOSviewer were used for bibliometric analysis. Green finance literature was captured by Scopus and WoS. These databases were used exclusively to get a representative sample of journal articles to study green finance articles. The data were collected and analyzed using Biblioshiny. Select databases can be systematically extracted and analyzed with the software. It collects year-by-year article distribution, journal distribution, country-specific scientific production, most relevant authors, most frequent words, word frequency over time, trend topics, density visualization, etc.

Trends and patterns were found by analyzing green finance paper distribution by year. This analysis shows green finance research's growth. By analyzing article distribution by year, we may also establish green financing and rising theme trends. To identify green finance research publications, article distribution was studied. Academic journal distribution can indicate green finance's prominence in various academic journals. Analyzing scientific production by region reveals regional green finance research tendencies. Scientific production across nations identifies knowledge-producing regions.

Analyzing influential green finance authors helps identify their contributions. This strategy acknowledges influential scholars. The research's most frequently used words reveal the fundamental questions and ideas of environmentally responsible economics. This analysis reveals the discipline's primary topics and studies. By counting words, it may focus on green finance's most important and widely used components. Word frequency can show how green finance's focus has shifted. By tracking word usage, it can identify trending topics. This analysis reveals changing green finance research priorities. Biblioshiny explores green financial trends. This study reveals new topics, research gaps, and subject interests. The trend themes allow us to evaluate green finance studies.

Results and findings

Study selection.

The PRISMA flow diagram illustrates that during the identification step, 528 articles from the WoS database and 1183 articles from the Scopus database that include the term "green finance" were identified. There were 402 duplicates, which were removed. The overall number of articles remained at 1302 at that point. Further attempts were made to include papers on empirical investigations in the final versions that were published in English. 34 non-English articles were thus disregarded. In addition, 295 papers from conferences, book chapters, reviews, news articles, notes, letters, abstracts, and brief surveys were not included. Two articles were disqualified because they were published before 2011. The next step was to retrieve the remaining 978 articles and transfer their pertinent data to an MS Excel file, including the article's title, abstract, keywords, authors' names and affiliations, journal name, citation counts, and year of publication. After that, each article was examined by a third party to determine whether it met the requirements for its eligibility.

Study characteristics

Main information.

This study examined 978 studies by 1830 authors from 59 countries. They've been published in 281 publications. The average number of citations each article received was 12.37. There were a total of 2206 keywords and 44,712 references. This information is detailed in Table  1 .

Annual scientific production

The fluctuations in green financing for scientific production are depicted in Fig.  2 . In 2011, two articles were published that demonstrated interest in this research. No publications were released in 2012, indicating a paucity of research or interest. The trend persisted in 2013 with two articles. One publication appeared in 2014, indicating a halt in research. Since 2015, scientific output has gradually increased. In 2015, three articles contributed to the development of green finance research. Two articles survived in 2016. With eleven articles published in 2017, green finance has become a significant area of study. In 2018, 23 articles were published; in 2019, there will be 42. With 45 publications in 2020, green finance research remains robust. Green finance research increased to 132 publications in 2021. This significant increase in articles on the subject indicates a growing interest in the matter. The publication of 403 research articles in 2022 represents a notable increase. This increase reflects the expanding literature on green finance and its academic significance.

Year-wise research article distribution. Source (s): Author created, 2023

Journal distribution

Table 2 consists of a list of journals that were included in the sample and had more than six relevant papers published inside the journals. The majority of the journals that publish articles relating to green finance are, unsurprisingly, those that focus on environmental science, renewable energy, and sustainability. This is despite the fact that finance is considered an essential component of green financing. Not a single journal in the field of finance was able to attract more than 10 papers.

Based on the number of papers, Environmental Science and Pollution Research emerges as the top journal, demonstrating a strong focus on comprehending the intersection between environmental science, pollution, and financial aspects. The prevalence of journals focused on renewable energy and sustainability, each of which publishes 50 papers, demonstrates the growing interest in examining the financial aspects of sustainable development and renewable energy sources. The fact that Resources Policy was included in the list of 49 papers indicates that a significant emphasis was placed on understanding the financial implications of resource management and extraction.

Green finance is interdisciplinary in nature, exploring the connections between finance and various environmental issues, as evidenced by the existence of interdisciplinary journals like Frontiers in Environmental Science. The existence of journals like Finance Research Letters and Economic Research-Ekonomska Istrazivanja highlights the importance of economic and financial analysis in the context of green finance.

Countries scientific production

The analysis of region frequencies in the provided data in Fig.  3 reveals intriguing patterns and highlights the varying levels of research focus in various countries. The analysis is focused on the top ten countries for scientific production on green finance.

China is the part of the world most frequently mentioned, with a striking frequency of 993. This suggests a significant research interest in comprehending and analyzing diverse aspects of China's economy, policies, and development. Given China's status as the world's most populous nation and its growing global influence, it is unsurprising that researchers have devoted considerable effort to examining China's position in various fields, including finance, sustainability, and innovation.

Pakistan follows with a frequency of 79, indicating a notable but relatively lower research emphasis. Researchers may have investigated particular Pakistan-related topics, such as its economy, governance, or social issues. Pakistan may be of particular interest to a subset of researchers, or there may be a paucity of relevant literature in the analyzed dataset.

With a frequency of 60, the UK is the third-most-mentioned region. This demonstrates a sustained interest in researching various aspects of the UK, such as its economy, financial sector, and policies. It is possible that the historical significance of the UK, particularly in terms of finance and international relations, contributed to its prominence in literature.

Most relevant authors

The prominent and active contributors to the discipline are shown in Fig.  4 . Wang Y has significantly added to the body of literature. The top authors have a constant record of publishing, which shows a dedication to knowledge advancement and suggests a high level of expertise in their field of study.

In this section, the findings that conform to the aims of the research are reported. The conclusions were generated through the use of trend themes, keyword co-occurrence analysis, "most frequent words," and "word frequency over time." During the course of the investigation, both the "keyword co-occurrence; network visualization" and the "density visualization" methods were applied.

Most frequent words

The analysis of the most frequent words sheds light on the emerging themes in the field of green finance, as illustrated in Table  3 and Fig.  5 . A significant emphasis on China, which appears 253 times in the literature, is one of the important observations. This indicates that China's initiatives and role in the context of sustainable finance and green investment are gaining increasing recognition. China's approach to green finance and its potential implications for global sustainability initiatives are likely the primary focus of researchers and policymakers.

The term "finance" appears 122 times, emphasizing the importance of financial mechanisms and instruments to the advancement of green initiatives. This emphasizes the significance of financial institutions, policies, and frameworks that support environmental protection and sustainable development. The frequency of the term "investment" (103) emphasizes the significance of allocating financial resources to environmentally friendly businesses and initiatives.

The 105 occurrences of "sustainable development" indicate the close relationship between green finance and broader sustainability goals. This indicates that researchers and practitioners recognize the need to align financial decisions with environmental, social, and governance (ESG) factors in order to achieve long-term sustainable development objectives.

The terms "green economy" (75) and "environmental economics" (57) refer to the integration of environmental considerations into economic systems and decision-making procedures. This emphasizes the importance of transitioning to environmentally sustainable economic models and policies.

The frequency of terms such as "carbon," "carbon emissions," and "carbon dioxide" (55, 55, and 51 times, respectively) indicates a focus on mitigating greenhouse gas emissions and addressing climate change via financial mechanisms. This is consistent with the worldwide drive for decarbonization and the transition to low-carbon economies.

In addition, the terms "innovation" (71), "impact" (67), and "efficiency" (49) emphasize the significance of technological advancements, measurable outcomes, and resource optimization in green finance. These ideas illustrate the ongoing pursuit of innovative strategies and solutions to promote positive environmental impact while maximizing resource utilization.

The terms "sustainability" (44), "policy" (49), and "financial system" (41) highlight the need for policy frameworks and a robust financial system to facilitate the incorporation of sustainability considerations into mainstream finance. These themes emphasize the critical role that regulations, incentives, and institutional arrangements play in promoting green finance practices and nurturing a sustainable economy.

In addition, the terms "climate change" (50) and "alternative energy" (42) suggest an emphasis on addressing climate-related issues and investigating renewable and sustainable energy sources. This demonstrates an acknowledgment of the role of green finance in the transition to a low-carbon, resilient future.

The relationships between the keywords depicted as nodes are displayed in Fig.  6 's keyword co-occurrence network visualization. The link shows how each keyword relates to the others. In particular, the thickness of the line indicates how strong the relationship is. As a result, Fig.  8 illustrates how China and green finance are connected by a thicker line, showing that the majority of green finance research is carried out in China. Additionally, the connection between finance, sustainable development, and investments in green finance shows their connection to green finance. In Fig.  6 , the nodes are grouped into the red, green, and blue clusters. These clusters contain the keywords listed in Table  3 for each one. The various clusters in Fig.  6 demonstrate how different areas of research had distinct effects on green financing. When keywords are grouped together, it indicates that the topics they refer to are quite likely to be the same. As a result, the red, green, and blue clusters in Fig.  6 highlight common themes, while Table  4 provides explanations for the clusters.

The keyword co-occurrence network visualization

Areas where empirical research is lacking

Figure  7 displays the density visualization map that the VOSviewer generated. The VoSviewer manual states that a node with a red background denotes sufficient research for established knowledge and that it is evident that more study on green finance is still needed. On the other hand, keyword nodes with a green background show that there hasn't been much research on those particular keywords. Other than finance and China, the other keywords in the figure are therefore in the green background, which denotes insufficient research.

The keyword co-occurrence density visualization

Word’s frequency over time

The analysis of words' frequency over time in Fig.  8 reveals a number of significant trends. Beginning in 2018, the frequency of the term "China" increases considerably, with a significant rise in 2022 and a peak of 253 occurrences in 2023. This indicates a growing emphasis on China's role in green finance and its expanding prominence in the academic literature.

The persistent occurrence of the term "finance" over the years indicates the sustained significance of financial mechanisms and instruments in the context of green finance research. Its increasing frequency over time demonstrates the continued emphasis placed on financial aspects of the field.

The consistent growth of the term "sustainable development" from 2016 to 2019 indicates a growing recognition of the connection between green finance and broader sustainability objectives. However, after 2019, its occurrence remains comparatively stable, indicating that sustainable development has become a well-established and consistent theme in the literature.

Similarly, the term "investment" has maintained a consistent presence throughout the years, indicating a continued emphasis on allocating financial resources to green and sustainable initiatives. Its frequency fluctuates but remains relatively high throughout the period under consideration.

The frequency of the term "economic development” increased gradually until 2021, after which it remained relatively stable. This indicates that researchers have acknowledged the need to incorporate economic development and sustainable practices, resulting in a continued emphasis on this topic.

Similar to the term "investments," it has maintained a consistent presence throughout the years. This demonstrates a persistent desire to investigate investment opportunities and strategies within the context of green finance.

The frequency of the term "green economy” increased until 2020, after which it stabilized. This demonstrates an ongoing commitment to transitioning to a greener and more sustainable economy.

The terms "innovation" and "impact" have exhibited a general upward trend over the years. This suggests that innovative approaches to measuring the impact of green finance initiatives and projects are gaining importance.

The term "green finance" has been used significantly more frequently, particularly after 2021. This demonstrates the increasing interest and focus on the specific discipline of green finance, reflecting its emergence as a distinct research area within the context of sustainable finance as a whole.

Trend topics

Insights into novel areas and their developments over time can be gained from an analysis of trend themes using author keywords in the bibliometric data, as shown in Fig.  9 .

Trend Topics

There are nine times where the "Paris Agreement" is mentioned as a subject. It was consistently present from 2019 to 2022, demonstrating a strong interest in comprehending the ramifications and execution of this global climate agreement. The Paris Agreement's effects on environmental regulations and attempts to slow down climate change were probably among the topics on which researchers concentrated.

Seven uses of the word "environment" show that it is a recurring subject. This implies maintaining a focus on environmental concerns and the interactions between human actions and the environment as a whole. It's likely that academics and researchers have examined numerous environmental concerns and their effects on various industries and regulations.

Six occurrences of "regional economy" are found in the literature. This shows a rise in interest in learning about the dynamics and growth of regional economies and how they relate to sustainable practices. The emphasis on regional economies indicates that scholars are looking at the regional and context-specific elements affecting sustainable development and economic progress.

Another subject with five mentions per topic is "crowdfunding". This shows that crowdsourcing is becoming more and more popular as a method of finance, especially for sustainable projects. Crowdfunding's ability to assist green projects, as well as the opportunities and challenges that come with it, has probably been studied by researchers.

With 631 occurrences, the topic "green finance" stands out due to its very high frequency and demonstrates its rising importance in the literature. This demonstrates a rise in interest in the nexus between finance and environmental sustainability. The methods, laws, and procedures that encourage financial investments in green projects and companies have probably been studied by academics and policymakers.

With 92 mentions, "China" stands out as being quite popular. In the context of green finance and sustainable development, this suggests a strong focus on China's participation. Researchers are probably looking at China's policies and initiatives and how they may affect international sustainability efforts.

The phrase "sustainable development" also comes up 70 times, demonstrating a steadfast interest in learning and implementing sustainable practices in a variety of fields. There is a good chance that academics have looked into the frameworks, policies, and tactics that help achieve long-term sustainable development goals.

Seventeen times are mentioned when the term "carbon neutrality" is brought up, which shows that efforts to achieve it are becoming more and more of a priority. To minimize greenhouse gas emissions and combat climate change, researchers have probably looked into a variety of strategies and regulations.

ESG (environmental, social, and governance) is a term with a frequency of ten references, which reflects the growing understanding of the significance of ESG aspects in investment choices and company practices. The incorporation of ESG factors into financial analysis and decision-making processes has probably been researched by researchers and practitioners.

Last but not least, the phrase "green finance policy" is used nine times, showing that policies that support and oversee green finance efforts are a particular emphasis of the study. It's likely that academics and policymakers have looked at how well these policies work and how they affect the growth of sustainable practices and investments.

In conclusion, study subjects that have attracted interest over time are shown by an analysis of trend topics in the bibliometric data. These themes show the continued attempts to understand and manage environmental concerns through research, policy, and finance, from global agreements like the Paris Agreement to specific topics like green finance and sustainable development.

Themes of green finance

This study uncovered a variety of topics relating to green finance as well as potential areas for further research. The descriptions of the themes are presented in Fig.  10 . Different themes related to green finance, along with significant studies that contributed significantly, are discussed below.

Green finance and environmental sustainability

In recent years, there has been a growing emphasis on the significance of green finance and environmental sustainability, leading to increased attention and focus in both academic research and practical applications. The world is currently experiencing an unparalleled environmental crisis, with issues like resource depletion, biodiversity loss, and climate change becoming more pressing. Green finance, which falls under the umbrella of sustainable finance, centers its attention on investments and financial methods that not only yield economic profits but also contribute to favorable environmental consequences.

Existing research mostly focuses on green finance and environmental sustainability in Asian countries, with specific focus on China. Green finance's function in low-carbon development has been thoroughly studied in relation to carbon emissions [ 13 , 147 ]. Green financing and renewable energy growth have also received attention, aiding China's clean energy revolution [ 4 , 12 , 20 , 21 , 40 , 49 , 51 , 56 , 61 , 67 , 72 , 75 , 76 , 80 , 85 , 89 , 97 , 104 , 105 , 107 , 109 , 110 , 119 , 121 , 129 , 135 , 144 , 145 , 149 , 169 , 172 ]. Environmental rules and green finance have also been studied to determine how well they promote sustainable financing [ 19 , 22 , 62 , 114 , 123 , 145 , 159 ].

When it comes to the study of regions outside of Asia, such as Africa, South America, and parts of Europe, there is a significant knowledge gap. It may be helpful to gain useful insights into regional variances and strategies if one is able to comprehend the various ways in which these various regions approach green financing and environmental sustainability initiatives.

Green finance and investments

Following a global shift toward sustainable and ecologically responsible economic practices, green finance and investments have developed dramatically.

Green bond quality and effectiveness, notably in China, is a major study topic. Green bonds finance ecologically friendly projects, therefore verifying their quality is crucial to green financial markets. To help green bonds meet sustainability goals, researchers have studied their quality procedures and standards [ 3 , 6 , 9 , 10 , 33 , 34 , 35 , 38 , 79 , 92 , 95 , 108 , 115 , 164 ]. The relationship between green and non-green investments is another frequent research topic. Researchers have studied the hedging or diversification impacts of these two assets. This study examines how green and non-green investments affect portfolio strategies, risk management, and the financial environment [ 1 , 116 ]. Another interesting relationship is natural resource richness, FDI, and regional eco-efficiency. Given global agreements like COP26, scholars are studying how natural resources and FDI effect regional ecological efficiency as states attempt to combine economic growth with environmental sustainability [ 15 , 36 , 42 , 143 , 157 ].

A key feature of green finance study is how financial institutions, integrate green investment and financing teams. The green finance agenda requires understanding how bank’s structure and behave to encourage sustainable investment. Green financial instrument creation and effect are another study topic. Researchers have examined green finance products including green bonds and minibonds to determine their performance and impact on environmental and sustainability goals. This field helps design policies and strategies to optimize industrial structures and promote sustainable development.

Green finance research examines how it affects industrial structures. Studies have examined how green finance initiatives including loans and investments optimize and shift industrial sectors toward sustainability. These findings are crucial for governments and business stakeholders seeking financial incentives for eco-friendly operations [ 12 , 31 , 46 , 57 , 85 , 96 , 124 , 130 , 139 ].

Green finance market interactions with financial variables must also be assessed for sustainable financial development. Researchers examine the relationship between green financial indices and other financial indicators to better understand how green finance affects the financial landscape [ 27 , 32 , 48 , 68 , 137 ].

Green finance and investments have many unexplored areas, presenting research opportunities. The behavioral dimensions of green investment focus on the psychological drivers and biases that influence investment choices; subnational and local initiatives, which are frequently ignored despite their crucial role in ecological action; cross-country comparisons to provide a more holistic view of effective green finance practices; the role and impact of green finance in emerging economies; and innovative green financial instruments like blockchain. Examining these lesser-known aspects could improve our understanding of sustainability in the financial sector and offer insightful information to investors, financial institutions, and legislators that want to make a positive impact on a more sustainable and environmentally friendly future.

Green finance and innovation

The convergence of green finance and innovation is a crucial topic that addresses the pressing global concerns of environmental sustainability and financial stability. Much study has been done on green finance and innovation, yet various themes and gaps emerge, demonstrating its complexity.

Green financing policies and instruments promote innovation, especially in environmental technologies and renewable energy. Many studies have studied how green funding affects green innovation and if it promotes sustainable technology. They've studied green bonds, green banking, and green finance reform laws, offering empirical evidence that financial incentives combined with green practices can stimulate environmental innovation [ 16 , 41 , 44 , 47 , 52 , 64 , 70 , 81 , 87 , 107 , 133 , 152 , 162 ].

The role of environmental legislation in green financing and innovation is another common theme. Researchers have studied how these restrictions affect green finance's impact on technology. Studying how financial policies and regulatory frameworks interact has helped explain the complex dynamics affecting innovation in environmentally sensitive industries [ 11 , 29 , 54 , 84 , 120 , 126 , 132 , 151 , 152 , 174 ].

Nevertheless, there are obvious gaps in the existing knowledge within the field. The effects of green finance on innovation have been extensively studied, but a better knowledge of the factors driving innovation in other areas is needed. Further study may reveal how green funding might boost innovation in non-environmental industries. How can financial mechanisms support sustainable transportation, agricultural, and urban planning innovation.

Further research is needed on education and the human element in green innovation. How green finance, educational investments, and innovation interact can help individuals, businesses, and societies develop a sustainable future. Green finance and innovation's impact on environmental adaptation and resilience also understudied. More research is needed to determine how financial mechanisms and new solutions may help communities and organizations adapt to climate change.

Green finance policy/green credit guidelines

Climate change and environmental degradation are major worldwide issues. Green finance, which promotes environmentally and socially responsible investments, is a key instrument in this battle. Research and discussion have focused on how green finance policies affect the economy and environment.

The switch to renewable energy is crucial to fighting climate change globally. This transition relies on green financing initiatives. Researchers are investigating how well such regulations promote renewable energy. They examined how green finance regulations affect renewable energy output, investment, and job development in this growing sector. Understanding these implications helps improve green finance initiatives for sustainability [ 18 , 98 , 118 ].

China and other nations have implemented green finance pilot programs to test the waters and stimulate innovation. This research evaluates pilot policy implementation and impacts. Scholars use synthetic control and other tools to study how these initiatives affect green innovation. The results help determine the real-world implications of such experiments and their potential for wider use [ 48 , 113 , 121 , 131 , 146 , 162 ].

Green financing policies vary worldwide. Comparative research of green financing rules can highlight policy differences among jurisdictions. Researchers compared the EU and Russia's green financing laws. These studies emphasize differences, similarities, and the potential influence of these policies on green finance development, promoting cross-border cooperation and knowledge exchange [ 60 , 125 ].

Monitoring and measuring green finance progress is essential for future development. Researchers are developing green finance indices to assess green finance in a country or region. These indices help policymakers, investors, and the public understand green finance's growth and potential [ 141 ].

Despite significant and informative research on green finance policies and their effects on the economy and environment, several research gaps and opportunities for additional investigation remain. First, a thorough evaluation of the durability and long-term sustainability of green finance policies is lacking in the literature. Many studies focus on short-term outcomes, but long-term planning and implementation need understanding these policies' long-term implications. Second, green finance policies' cross-border effects need greater study. As the global economy grows more interconnected, it's important to understand how regional policies affect others and the possibility for international collaboration. Green finance and social effects as creating employment and community development are understudied. Such studies could illuminate these policies' overall impact. Finally, additional multidisciplinary research combining economics, environmental science, and social science are needed to comprehend green finance policies' complex implications. Scholars can fill these gaps to improve our understanding of this crucial topic and inform sustainable policymaking.

Green finance and economy

The relationship between carbon intensity and economic development is a growing topic in green finance research. How nations may shift to low-carbon economies while maintaining economic growth has been studied. Several studies have quantified how green finance policies reduce carbon emissions and boost economic growth [ 63 , 71 , 122 , 155 , 175 ].

The study of the impact of green financing on agriculture, particularly in China, is gaining attention. Green financing impacts agricultural trade, sustainability, and food security, according to researchers [ 37 , 140 ]. Given its connection with economics, food production, and sustainability, this type of researches is crucial.

Efficient utilization of natural resources in Asian countries has gained attention for promoting green economic growth. Researchers have studied how nations might maximize economic gains from natural resources while reducing environmental harm. Addressing sustainable economic development concerns requires this area [ 86 , 101 , 146 , 166 ].

The significance of judicial quality in reducing emissions without hindering economic growth is a common issue in green finance research. Researchers examine how strong legal systems can enforce environmental laws and promote green practices while boosting the economy [ 154 ].

Even while the previously stated research topics have unquestionably enhanced our understanding of the intricacies of green finance, there are still a number of uncharted territories and research gaps that need to be investigated further. Currently, research on green finance mostly focuses on economic and environmental concerns. Integrated research combining economic, environmental, and social science is needed. It can provide a holistic view of green finance policy' many implications. The globalization of green finance policy has significant implications and cross-border effects. These policies' worldwide spillover effects and country collaboration are rarely studied. Research is lacking on how regional policies affect others and international cooperation.

Green finance and corporate social responsibility

Fostering CSR requires understanding how environmental regulations affect companies' sustainable strategies. Researchers should examine how CSR goals can be better aligned with regulations to improve environmental and social outcomes. Researchers have studied green finance-CSR approaches to promote sustainability. This research seeks to understand how green finance initiatives like green bonds and sustainable investment practices affect CSR performance [ 173 ]. Businesses and investors looking to maximize their environmental and social impact must understand these mechanisms.

One intriguing research topic is empirical evidence from heavily polluting enterprises, especially in China. This study shows how green finance can reduce environmental harm and promote CSR in industries with a high environmental impact [ 45 , 66 ]. Researchers can find ways to help heavily polluting companies become more sustainable by studying their experiences.

Bangladesh banks' CSR and green finance practices have also been studied [ 168 ]. This study studies how green financing affects financial institution CSR and environmental performance. Financial organizations can use these results to incorporate environmental responsibility while being profitable. Another relevant research topic is post-pandemic CSR practices as a business strategy to combat volatility and drive energy and environmental transition [ 53 ]. Understanding how CSR and green finance can help companies whether economic downturns and pandemics are crucial. This research can help businesses adapt to changing business conditions.

Further studies can explore socially responsible mutual funds and low-carbon economies. The impact of the investment industry on sustainability and environmental responsibility can be better understood by scholars by examining how these funds affect company behavior and investment decisions. Investors and businesses pursuing sustainable development may find these insights to be beneficial.

Green bond issuance is growing, thus study on its effects on company performance and CSR is needed. Investors seeking to support environmentally responsible businesses and companies contemplating green finance must have a comprehensive understanding of the repercussions on associated with green financing.

Trends/challenges/barriers/awareness of green finance

Regional patterns in China's green finance trends are well-studied, but little is known about applying these findings elsewhere, especially in countries with similar environmental issues [ 24 , 30 , 83 , 88 ]. Analysis of green finance growth by sector is common; however, there may be a knowledge vacuum about how sectors might learn from each other to create more successful sectoral plans [ 28 , 50 , 142 ].

Analyzing the structural barriers to green financing is vital, but also understanding how consumers, financial institutions, and governments can work together to close this gap is crucial. Political and institutional restrictions in green financing have been extensively examined, but cross-national comparisons might reveal similar concerns and inventive solutions. Cultural variety is crucial in ethical and green finance, but the challenges of adapting cultural methods to different places may not be adequately examined [ 7 ].

There were 213 papers pertaining to green finance research that were published between the years 2011 and 2021. However, between 2022 and May 2023, there was an enormous increase in the number of publications, which was 715. These publications can be found in Scopus and WoS. This spike can be associated with a number of causes that have encouraged both academia and industry to focus on sustainable and environmentally friendly practices. These drivers can be found in both the public and private sectors.

To begin, there has been a growing awareness of the urgent need to address climate change and its adverse impacts on the world. An increasing number of demands for action have accompanied this recognition. Green finance provides a means by which funds can be directed toward projects and investments that promote environmental sustainability, such as the development of sustainable infrastructure, clean technologies, and renewable sources of energy. In addition, global initiatives such as the Paris Agreement have put pressure on governments and financial institutions to align their strategies with climate goals, which has led to an increased demand for research on green finance practices and regulations [ 58 ]. Additionally, investors and consumers are becoming more aware of the environmental impact of their financial actions, which is contributing to an increase in demand for environmentally responsible investing products and services [ 39 ]. As a direct consequence of these developing tendencies, researchers and academics have developed responses to them, adding to the expanding body of literature on green finance.

993, more than any other nation, are references to China. This shows a keen interest in learning about China's economy, politics, and development. Researchers have concentrated on China's position in finance, sustainability, and innovation given its status as the world's largest population country and its growing global relevance due to its critical role in fostering sustainable and low-carbon development. Reduced energy use and waste are the goals of energy efficiency measures, which also have a positive effect on the environment by reducing greenhouse gas emissions. Researchers want to comprehend the procedures, regulations, and financial tools that can successfully encourage and support energy efficiency projects, which will ultimately contribute to a greener and more sustainable future. This is why they are focused on energy efficiency within the context of green finance [ 2 , 14 , 60 , 67 , 69 , 74 , 106 , 117 , 134 , 136 , 156 , 160 , 170 ].

The construction of pilot zones for green finance reform and innovations (GFRI) is a significant step the Chinese government has taken to build a green economy. Many authors have conducted surveys on China's GFRI policy and its impact on innovations. The GFRI policy program supports green innovation in large, polluting companies and urban green development by enhancing total factor productivity in pilot cities, emphasizing the importance of debt finance in corporate green innovation [ 40 , 82 , 148 , 150 , 153 , 158 ]. A different study by Wang et al. in 2022 [ 127 ] discovered that while the GFRP generally plays a positive role in fostering green technology innovation capabilities, the extent to which it has an impact varies depending on the region's resources, environment, and level of economic development, with middle- and high-income areas seeing a more noticeable impact. Wang et al. in 2022 [ 127 ] propose a green finance index, employing statistical indicators from 2011 to 2019, to analyze China's green finance development and predict its growth from 2020 to 2024. New energy, green mobility, and new energy vehicles have boosted China's green finance index during the previous nine years, according to research.

The Green Financial Reform and Innovation Pilot Zones (GFPZ) policy's effect on the ESG ratings of Chinese A-share listed firms between 2014 and 2020 is examined in another study. The findings showed that the GFPZ policy raises ESG scores, which are mainly based on social responsibility, and helps businesses in the pilot zones do better financially and environmentally [ 17 ]. In 2023, Shao and Huang [ 111 ] reviewed China's green finance policy mix, showing a shift toward market-based approaches and greater private sector engagement, influenced by dynamic vertical interactions between different levels of government.

Chen et al. [ 14 ] examined the response of China's equity funds to institutional pressure on green finance in 2021. The results showed that funds with negative screening strategies, which exclude environmentally harmful investments, have higher green investment levels and higher financial returns, while funds with positive screening strategies face negative investor reactions despite their green investments.

A study done by Lv et al. [ 88 ] found that while green finance development in China is improving, regional disparities and a polarization trend exist, requiring measures to narrow the gap and promote coordinated development across economic regions. Because it is crucial for striking a balance between economic development, environmental conservation, and social well-being, researchers in green finance concentrate on sustainability. The authors focused on studies on sustainable investment options, analyzed how environmental, social, and governance aspects are incorporated into financial decision-making, and evaluated how sustainability affects financial performance. Researchers are expected to advance ethical and sustainable financial practices and help the world accomplish its sustainability goals by studying sustainability within the context of green finance [ 5 , 25 , 43 , 46 , 59 , 73 , 77 , 90 , 91 , 94 , 104 , 109 , 138 , 161 , 163 , 165 , 167 , 171 ].

In conclusion, research on green finance has primarily focused on Asian countries, particularly China, where it plays a crucial role in low-carbon development and renewable energy growth. However, there is a significant knowledge gap in regions outside Asia, such as Africa, South America, and parts of Europe. Further research is needed to understand regional variances and strategies in these areas.

Studies have examined various aspects of green finance, including green bond quality, the relationship between green and non-green investments, and the impact of green finance on environmental and sustainability goals. Behavioral dimensions of green investment, subnational and local initiatives, cross-country comparisons, and the role of green finance in emerging economies have also been explored. Additionally, the role of green finance in stimulating innovation in environmental technologies and renewable energy has been studied, but there are gaps in understanding its impact on non-environmental industries and the human element in green innovation.

Further research is needed to understand the role of environmental legislation in green finance, its impact on technology, and its cross-border effects. The durability and long-term sustainability of green finance policies should also be examined, along with their social effects such as employment creation and community development. The relationship between carbon intensity and economic development, as well as the alignment of corporate social responsibility goals with environmental regulations, are important areas for investigation.

There is a need for more research on applying the findings from China's green finance trends to other countries facing similar environmental issues. Structural barriers to green financing should be analyzed, and the collaboration between consumers, financial institutions, and governments in closing this gap should be explored. Cultural diversity in ethical and green finance should also be considered, along with the challenges of adapting cultural methods to different places. Overall, further research in these areas can contribute to a more sustainable and environmentally friendly future.

When compared to other fields of study, it is clear that research on green finance has not been investigated to the same extent. In contrast to the less-researched areas of carbon, carbon emissions, climate change, financial systems, policymaking, agriculture, CSR, supply chain, risk management, corporate strategy, regional planning, and governance, green financing has been well-liked with investments, sustainable developments, green innovations, and green economies. On the other hand, taking into account the growing attention paid to sustainability on a worldwide scale and the pressing need to find solutions to the problems posed by the environment, it is quite likely that research into green finance will become more important in the years to come.

The increasing significance of sustainable development and the change to an economy with lower carbon emissions will require the development of innovative financial solutions to support green initiatives and assist the shift toward a financial system that is more friendly to the environment and more sustainable. It is anticipated that researchers will devote a greater amount of attention to green finance as the level of awareness regarding the environmental and social impacts of financial activities continues to rise. These researchers will investigate topics such as sustainable investment strategies, green bond markets, sustainable banking practices, and the incorporation of environmental considerations into financial decision-making. In addition to this, the incorporation of environmentally friendly financial practices into policy frameworks and regulatory measures further emphasizes the requirement for research in this particular area. In general, it is projected that research on green finance will pick up steam in the years to come because it plays such an important role in the process of sculpting a financially sustainable and resilient.

Availability of data and materials

SCOPUS and WoS databases.

Abbreviations

Corporate social responsibility

Financial Technology

Green finance reform and innovations

Green Financial Reform and Innovation Pilot Zones

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Advancing green finance: a review of sustainable development

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This study comprehensively reviews the relationship between green finance and sustainable development, specifically focusing on combatting climate change and achieving carbon neutrality. Utilizing a narrative review methodology, the study examines a range of scholarly articles and publications to identify key themes, findings, and future directions in green finance. The review emphasizes the crucial role of substantial investments in green and low-carbon initiatives to address climate change effectively and promote sustainable economic growth. It highlights the necessity of robust regulatory frameworks that facilitate the availability of green finance and the integration of carbon–neutral practices. Additionally, the paper explores the potential of impact investing, wherein investors accept lower financial returns in exchange for non-financial benefits in green finance. It underscores the influential role of institutional ownership in guiding companies toward enhanced environmental and social performance. Moreover, integrating environmental, social, and governance (ESG) factors in investment decisions is critical for sustainable finance. Addressing the intersection of climate change and risk management, the review highlights the implications of environmental risks on financial decision-making. Effective communication strategies can raise public awareness and support for climate policies. The study concludes by calling for collaboration, further research, and policy measures to advance green finance and foster sustainable economic growth. It recommends aligning financial incentives with sustainable outcomes, fostering transparency, and incorporating social equity in green finance initiatives to contribute towards achieving sustainable development goals and promoting a greener future.

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1 Introduction

In the rapidly evolving global landscape, the imperative of sustainable development and the urgent need to combat climate change cannot be overstated (Radu et al. 2013 ). Green finance, which centers around environmentally friendly investments and practices, has emerged as a pivotal instrument in achieving carbon neutrality and greening sustainable economic growth (Bhatnagar et al. 2022 ). This article aims to comprehensively review the intricate relationship between green finance and sustainable development.

The advancement of green finance is indispensable in attaining sustainable development goals and addressing pressing environmental challenges (Goel et al. 2022 ). This review critically examines the existing literature on the nexus between green finance and sustainable development, particularly emphasizing the prospective implications for the finance industry.

The reviewed scholarly papers significantly contribute to our understanding of the importance of substantial investments in green and low-carbon initiatives in combating climate change and achieving carbon neutrality. They accentuate the need for robust regulatory frameworks that facilitate the increased availability of green finance and the integration of carbon–neutral practices. A thorough analysis of prominent institutions like the Green Climate Fund is included in this study, which emphasizes the importance of ensuring that climate funding initiatives are scaled up by diversifying funding sources and mitigating conventional finance risks (Cevik and Jalles 2022 ).

The papers also discusse how green financing impacts decarbonization efforts and emphasizes the need for further research to increase our understanding of their effectiveness (Al Mamun et al. 2022 ). The study also highlights the significance of investors' preferences for sustainable investments, emphasizing the influence of social choices on economic decision-making. They underscore the indispensability of transparency, standardization, and social equity in shaping the contours of green finance (Aramonte and Zabai 2021 ).

A comprehensive analysis of the interaction between green finance and sustainable development is also included in the review, including topics such as sustainable development goals, financial institutions' pivotal role, and the impact of environmental policies on research and development funding. The papers underscore the enduring positive effects of green finance on sustainable growth, necessitating the formulation of precise definitions, relevant studies, and tax policies to expedite the adoption of green financing and enhance climate change mitigation (NACI, S., 2021 ).

Additionally, the potential for impact investing as a driver for green finance is meticulously explored. The papers underscore investors' willingness to accept lower financial returns for non-financial benefits and the instrumental role of institutional ownership in steering firms toward enhanced environmental and social performance. The articles accentuate the critical importance of impact investing and sustainable finance in fulfilling ecological responsibilities while drawing attention to the scope of insensitivity in sustainable investing (Edmans and Kacperczyk 2022 ).

It explores how environmental, social, and governance (ESG) factors affect investment decisions in green finance (Jagannathan et al. 2017 ). The papers underline the pivotal role of robust ESG practices and disclosure in bolstering risk-adjusted returns (Azarow et al. 2021 ). Given the increasing prominence of green finance and sustainable investing, incorporating ESG criteria when constructing investment portfolios is paramount.

Moreover, the intersection of climate change and risk management is a salient aspect investigated in the review. The study emphasizes the ramifications of environmental risks for financial decision-making and the indispensability of environmentally conscious investing. Effective communication strategies are instrumental in raising public awareness and garnering support for climate policies. Political uncertainty is critical in investment decisions, particularly for industries grappling with stranded assets (Khatibi et al. 2021 ).

Lastly, the papers underscore the indispensable role of green finance in fostering sustainable economic growth and tackling climate change. The potential for aligning financial incentives with sustainable outcomes is highlighted, necessitating active monitoring and engagement with portfolio companies on environmental issues (Starks 2021 ). Implementation challenges and the need for comprehensive and comparable data on green financing activities are also addressed, providing crucial insights into the instrumental role of green finance in advancing sustainable economic development.

2 Research methodology

In conducting a comprehensive review on the topic of “Advancing Green Finance: A Review of Sustainable Development and the Future Directions,” a Narrative review method was used.

We conducted extensive research to identify scholarly articles, publications, and research papers on green finance, sustainable development, and their future implications. Various sources, such as online databases and academic platforms, were utilized to compile relevant information on the subject.

Texts were chosen for their pertinence and contributions to the research subject. Reviewed works from peers that offered valuable perspectives on the correlation between green finance, sustainable development, and forthcoming prospects were incorporated into the examination.

We analyzed and synthesized the selected literature to identify key findings, themes, and trends related to green finance and sustainable development. According to the review, shared viewpoints were identified, areas of study were lacking, policy recommendations were made, and implications for future research were identified.

The findings from the analyzed literature were organized into distinct sections to provide a structured overview of the subject matter. These sections included topics such as “Green Finance and Low Carbon Initiatives” and “Green Finance and Sustainable Development”. The narrative review synthesized the collective findings of the selected literature, highlighting the significance of green finance in achieving sustainable development goals and addressing climate change. It emphasized the role of financial institutions, policy recommendations, impact investing, ESG criteria, risk management, renewable energy, and the challenges and opportunities associated with implementing green finance initiatives.

The findings of this narrative review contribute to our understanding of green finance, sustainable development, and its implications for the financial industry, corporate behavior, and the environment. They provide valuable insights for investors, policymakers, and researchers seeking to promote sustainable investments and drive green finance initiatives.

Researchers worldwide have been actively exploring the realms of green finance and sustainable development in response to the pressing challenges posed by climate change and environmental degradation. To analyze the trends in research focused on this crucial subject, we evaluated an available selection of references used in this research. We organized the keyword research into various groups and subgroups based on the keywords used. This interpretation aims to provide valuable insights into the distribution of keywords, highlighting their significance and implications for the overall research in this field. By emphasizing green finance and sustainable development, policymakers, investors, and stakeholders can make informed decisions to advance a greener and more sustainable future.

A thorough examination of the articles’ keywords identified primary groups, as demonstrated in Fig.  1 . This visual representation highlights the most frequently used subjects in the papers and their corresponding frequencies.

Analysis of Initial Keyword Groupings

Furthermore, Fig.  2 presents a word cloud diagram visually depicting the initial grouping to facilitate a more exhaustive analysis of the subjects addressed in the literature.

Word Cloud Analysis of Initial Keyword Groupings

The haste over climate change must be managed by low-carbon initiatives and green financing, as highlighted by keywords such as "Climate Change," "Carbon Emissions," and "Global Warming." Supporting climate-related projects is emphasized by instruments like "Green Bonds" and the "Green Climate Fund." There is an emphasis on renewable energy and low-carbon energy, indicating a growing concern with investing in sustainable energy sources. Answerable investing, as indicated by CSR and ESG, shows the increasing consideration of environmental and social factors in investment decisions.

Furthermore, "Impact Investing" and "Sustainable Investing" support the trend of seeking socially responsible investment opportunities, while "Sustainable Development" and "Sustainable Finance" play a vital role in supporting economic growth and achieving developmental goals. The multifaceted role of financial institutions in promoting green finance and sustainable investments is highlighted by keywords related to various financial instruments and entities. The importance of balancing financial performance and risk management within green finance is indicated by "Stock Returns" and "Leverage." Additionally, investor preferences and social choices are influential factors in shaping green finance, as suggested by "Portfolio Choice." Workforce participation and public engagement are essential for the success of green finance initiatives. Geopolitical risks, mainly related to "China" and the "Russia-Ukraine Conflict," impact global green finance and sustainable development efforts, requiring consideration in sustainability planning. Lastly, "Trade Openness" highlights the significance of international trade policies in influencing green finance practices, emphasizing the importance of global cooperation in addressing sustainability challenges.

Figure  3 provides a detailed description of the subgroups. This keyword analysis offers insightful information on the most important trends and issues concerning climate change, green finance, Sustainable finance, ESG, CSR etc. Nevertheless, the findings can be reorganized and expanded upon as follows to enhance the description of the results:

Word Cloud Analysis of Subgroupings Keyword Groupings

A comprehensive analysis of keywords in references reveals the diverse and extensive coverage of green finance and sustainable development topics in research. The concentration of keywords in specific groups indicates a strong focus on climate change, environmental impact, responsible investing, financial institutions, and social and economic factors within green finance. By considering these trends and interpretations, stakeholders can make informed decisions and contribute to a greener and more sustainable future.

3 Research perspectives and progresses

3.1 green finance and low carbon initiatives.

The collective findings of these papers contribute to our understanding of the relationship between green finance and low carbon initiatives. They underscore the importance of substantial investments in green and low-carbon initiatives to achieve carbon neutrality and combat climate change. The papers suggest policy recommendations to strengthen the regulatory framework for green finance, increase its availability, and incorporate carbon–neutral practices. Investor preferences for sustainable investments highlight the influence of social choices on economic decisions, emphasizing the importance of transparency, standardization, and social equity.

3.1.1 Fostering green finance and low-carbon development

Kong's ( 2022 ) research shows that carbon neutrality is crucial to climate change. New energy is necessary to promote carbon neutrality. He explains the meaning and significance of new energy in transitioning to carbon neutrality. Investing in green and low-carbon initiatives is essential to developing environmentally friendly energy sources.

The research examines China's growth patterns and critical green finance features. The author presents several policy recommendations focusing on the advantages of carbon–neutral practices in green finance. As part of these recommendations, the framework for sustainable financial regulation needs to be strengthened. In addition, they include creating an environment conducive to green finance development in China by expanding sustainable financial services.

This paper presents policy recommendations for fostering green finance in China. Kong ( 2022 ) also analyzes the United States' strategies and experiences promoting low-carbon development and suggests countermeasures for China's growth. The proposed actions include enhancing the top-level design and regulatory policy system, improving the energy structure, increasing the share of clean energy, improving industrial facilities, lowering energy consumption in critical industries, establishing a comprehensive zero-carbon technology system, promoting low-carbon research and development, and identifying low-carbon development paths appropriate for the region.

Kong's study on the relationship between green finance and low-carbon development explains the novel energy concept and its role in carbon neutrality. Kong's study on green finance and low-carbon development focuses on China. The report also discusses the current state of green finance in China, highlighting the benefits of carbon neutrality. The study's policy recommendations to strengthen the regulatory framework for green finance and expand its availability in China offer essential guidance for policymakers and stakeholders.

3.1.2 The role of the Green Climate Fund

The article by Amighini et al. ( 2022 ) addresses the current state and potential future climate finance strategies, specifically focusing on the Green Climate Fund (GCF). The authors assert that further research is required on the GCF's appropriation distribution tactics, even though they agree that most political and academic emphasis has been on increasing money for the GCF.

The authors propose that to increase the GCF's efficacy, it should shift away from exclusively providing public money for non-bankable projects and instead concentrate on channeling both public and private sources of finance and de-risking more conventional forms of finance. The authors claim the strategy would allow the GCF to scale up climate funding and improve its appeal to investors.

Nevertheless, non-bankable projects may be more crucial to meeting the needs of developing countries, especially in sectors or regions without private investment. As a multilateral fund, the GCF should focus not on attracting private investment but on the needs of developing countries and the public good. Therefore, the GCF may still need to fund non-bankable projects critical to climate adaptation and mitigation in developing countries, even if they require help attracting private investment.

Nonetheless, supporters of this argument may point out that the GCF could do more to leverage private investment and mobilize capital to address the needs of developing countries. By providing de-risking mechanisms and supporting innovative approaches, the GCF could encourage private investment in low-carbon and climate-resilient projects and help mobilize the necessary resources to address climate change.

The paper critically discusses potential future climate finance strategies, focusing on the Green Climate Fund. While there are differing opinions on the most effective approach for the GCF, the authors provide practical assistance to the ongoing debate on mobilizing resources to address climate change.

3.1.3 Assessing the impact of green financing on decarbonization efforts

The international community has recently focused on promoting green finance to address environmental protection, climate change, and sustainable development. Nevertheless, from an ecological standpoint, scholars have mainly evaluated the elements and forces behind green financing. Jia ( 2023 ) seeks to assess how green funding affects economies' efforts to reduce their carbon footprints, particularly in the People's Republic of China, the Russian Federation, and the United States.

The study examines green bonds as these countries' most common green finance tool for decarbonization. The report concludes that green money has not significantly affected these countries' decarbonization efforts. Even if businesses and government organizations have made strides, the study contends that further research is necessary to fully grasp how well green financing works to encourage decarbonization and how businesses and government organizations fit into this process.

The study's findings do not prove that green bond issuance reduces corporate carbon intensity. Furthermore, it is unknown if the existing green bond financing mechanism speeds the shift to a low-carbon economy. Overall, the study emphasizes the need for more investigation and assessment of green finance's efficiency in advancing decarbonization. Understanding how institutions and government organizations suit this technique is vital, as is identifying valuable tools and methods for promoting sustainable development policy.

There has been recognition of the value of green finance in tackling environmental protection, climate change, and sustainable development, but more research is needed to determine its effectiveness. Jia's analysis shows how green financing affects the decarbonization of the US, China, and Russian economies. Further research is required to identify practical strategies and tools for promoting sustainable development policies.

3.1.4 The impact of sustainable spending on investment behavior

Campbell and Sigalov ( 2022 ) explore how sustainable spending affects "reaching for yield" in their model of "reaching for yield." Although green finance or sustainable investing is not explicitly mentioned in the paper, the idea of sustainable spending aligns with the views of sustainable finance, which encourages investments that support sustainable development while still yielding financial rewards. The concept of sustainable spending may be used by investors who prioritize sustainable financing to direct their investment choices, such as investing in green initiatives or businesses with robust ESG practices. This study provides insight into how investors react to changes in interest rates and risk premiums. It does not consider how investing in green projects may affect risk-taking and has other limitations. Despite these limitations, it offers a valuable framework for understanding investors' behavior in response to changes in interest rates and risk premiums in a sustainable investing context.

3.1.5 Investor preferences and sustainable investments

Green finance is crucial for achieving Sustainable Development Goals (SDGs), as Rogelj et al. ( 2016 ) argue. They conduct two field surveys with a pension fund that grants its members a vote on its sustainable investment policy to determine whether individuals are willing to support sustainable investments even if they negatively impact their financial performance. After observing the pension fund's increased focus on sustainability, most participants still support more sustainable investments. The authors conclude that social preferences significantly influence economic decisions and propose a simple method for institutional investors to cater to the social importance of their clients. Investor willingness to invest in sustainable projects, transparency, and standardization of sustainability reporting influence green finance's effectiveness in achieving Sustainable Development Goals (SDGs). Transparency, standardization, and social equity are essential to create a sustainable and equitable future. With green finance, sustainable development projects and investments can be financed and invested, contributing to global sustainability efforts.

3.2 Green finance and sustainable development

Diverse topics and studies are covered in this section about Green Finance and Sustainable Development. Green finance is discussed as it relates to sustainable development goals, the role of financial institutions, environmental policies' impact on R&D investment, and the enhancement of climate finance. The papers emphasize the need for precise definitions and relevant studies to promote green financing and climate change mitigation. Further research into climate finance, focusing on extreme weather risks, divestment, and stranded assets, is also recommended.

3.2.1 Causal relationship between green finance and sustainable development

Wang et al. ( 2022 ) use the bootstrap rolling-window Granger causal relationship test to globally assess the causal relationship between green finance (GF) and sustainable development (SD). The outcomes of the empirical analysis indicate that GF has positive impacts on SD in various sub-periods. However, the study needs to reach a consistent conclusion on the influence of sustainable development on green finance.

Green finance has emerged as a new financial tool for promoting sustainable development, but its precise impact has yet to be proven. The study aims to fill this gap by performing a practical analysis of the effects of multiple stakeholders on SD through their participation in GF projects. The results show a dynamic causal connection between GF and SD in different subsample intervals, but the direction of this connection could be more consistent. The study suggests that policymakers promote green finance and its contribution to sustainable development through government guidance, improved GF classification and evaluation, and better information disclosure.

3.2.2 The impact of environmental policy on R&D investment

Brown et al. ( 2022 ) explore the impact of environmental policy on the research and development (R&D) investments of polluting firms. The study highlights the potential of tax policy to incentivize technological innovation towards cleaner production methods, providing evidence for the link between market-based environmental approaches and technical change.

The study suggests that further research is necessary to investigate the interaction of pollution taxes and research subsidies on technology investment decisions, the influence of other legal and institutional determinants on R&D investment, and how policy-induced investments in modern technology affect the level of noxious manufacturing emissions in high-pollution firms. In green finance, emissions taxes may encourage investment in green finance impacted this discovery emphasizes the importance of enabling investments in clean technologies, particularly within sectors that use environmentally harmful production methods. By advocating and funding the adoption of clean technologies, green finance can play a vital role in reducing the detrimental effects of pollution on the environment and fostering sustainable development.

3.2.3 Enhancing climate finance

The article by Hong et al. in 2020 highlights the significance of conducting further research in climate finance. The researchers emphasize the need for improved modeling and sharing of extreme weather risks using remote sensing and machine learning. They also stress the importance of divestment and stranded assets and how they can potentially influence the cost of capital for energy companies, leading to significant stranded asset risk. Municipal finance is also discussed, in which rating agencies consider incorporating climate change resilience measures into municipal bond ratings. As a last point, the article suggests exploring the impediments to corporate and financial innovation related to climate change, including the nature and impact of green bonds. The report emphasizes how financial economists must understand and address the risks associated with climate change and its potential implications for financial stability. As part of green finance, it is crucial to consider the effects of climate change on investments, financial stability, and innovation in the financial sector.

3.2.4 The impact of government expenditure on green economic performance

Feng et al. ( 2022 ) investigate the link between government expenditure and green economic performance in countries participating in China’s Belt and Road Initiative (BRI). The authors employ data envelopment analysis (DEA) and system GMM techniques to analyze panel data from 2008 to 2018 in selected BRI countries. The study findings indicate that government expenditure significantly impacts green economic performance, with public spending on human capital and renewable energy leading to a productive green economy. The paper also includes policy recommendations to support BRI countries in achieving their green development goals, such as allowing green infrastructure projects to attract more private green finance and investment.

The study does, however, have specific areas for improvement. For instance, because the research solely focuses on BRI countries, the conclusions cannot be generalized to other regions or nations. Moreover, the study’s DEA and GMM techniques should fully capture the relationship between government expenditure and green economic performance complexities. Nonetheless, the study contributes a valuable statistical analysis using panel data and econometric methods, and the policy recommendations provide practical implications for BRI countries and decision-makers.

3.3 The potential of impact investing for green finance

The articles in this section explore the potential of impact investing for green finance. They examine various aspects of impact investing, including the willingness of investors to accept lower financial returns for non-financial benefits, the role of institutional ownership in promoting firms' environmental and social performance, scope insensitivity in sustainable investing, and the power of institutional shareholders in driving sustainable investments.

3.3.1 Sacrificing returns for environmental and social impact in green finance

The study by Barber et al. ( 2021 ) investigates the willingness of investors to accept lower financial returns for the non-financial benefits of impact investing, particularly in dual-objective venture capital (VC) funds. The study finds that impact investors sacrifice returns, with impact funds earning 4.7 percentage points lower IRRs than traditional VC funds. The study shows that impact investors will forego up to 3.7 percentage points in expected excess IRR. The cost of capital for portfolio companies is lower for impact funds, leading to increased access to capital and growth opportunities. The findings have important implications for green finance. They suggest investors are willing to trade financial returns for positive environmental or social impact. That specific category of investors has higher WTP for such effects, which could guide the development of green finance strategies and policies.

3.3.2 The role of ownership in firms' environmental and social performance

Dyck et al. ( 2019 ) examines the relationship between institutional ownership and firms' environmental and social (E&S) performance, with implications for green finance and sustainable investment practices. Investing institutions can promote sustainable practices by pressing firms to improve their E&S records, resulting in a shift towards socially responsible investing. In addition, the study emphasizes the influence of cultural factors on economic decision-making and the potential effectiveness of green finance initiatives.

However, the study has limitations, including not considering governance practices and using proprietary E&S scores from data providers. The study provides valuable insights into the role of institutional investors in promoting E&S practices. It highlights the need for further research to explore how green finance can leverage institutional investors for sustainable business practices.

3.3.3 The impact of institutional shareholders on CSR and sustainability

Chen et al. ( 2020 ) investigate how institutional shareholders impact corporate social responsibility (CSR) and sustainability in portfolio firms. Institutional shareholders can positively influence CSR commitments, particularly in financial material categories, and generate real social impact through CSR-related proposals. The study's robust evidence suggests that institutional shareholders play a crucial role in promoting environmental responsibility and sustainable practices in businesses. The study's findings have important implications for green finance as investors increasingly demand sustainability commitments. However, the study does not explore the potential unintended consequences of institutional shareholder influence and focuses on the U.S. market. Nonetheless, the study offers practical suggestions for investors and asset managers seeking to integrate ESG factors into their investment strategies. In conclusion, institutional shareholders will become more influential in driving environmental sustainability and green finance.

3.3.4 The impact of corporate green bonds on environmental performance

Flammer's 2021 study examines the prevalence and impact of corporate green bonds, whose proceeds finance climate-friendly projects. Researchers found that green bonds are increasingly prevalent in industries where the environment is critical to firm operations. Furthermore, Flammer's analysis reveals that companies improve their environmental performance post-issuance, with higher ecological ratings and lower CO2 emissions, and experience increased ownership by long-term and green investors. The findings suggest that corporate green bonds are not merely a tool for greenwashing, as improvements in environmental performance are observed following their issuance. Overall, Flammer's study sheds light on the potential benefits of corporate green bonds for both companies and investors, as well as the importance of private governance in the green bond market and is related to the development of green finance.

3.4 Corporate social responsibility and governance

In this section, the reviewed articles study corporate social responsibility (CSR), environmental externalities, and governance. The studies reveal that the political environment, legal origins, and corporate governance drive CSR policies and practices. The articles collectively suggest that incorporating environmental considerations into CSR policies is essential for long-term financial performance and promoting sustainability, making CSR a critical aspect of green finance.

3.4.1 The influence of political environment on corporate social responsibility

Di Giuli et al.’s ( 2014 ) study examines the relationship between a company’s political environment and corporate social responsibility (CSR) policies. According to the researchers, firms with Democratic founders, CEOs, and directors, as well as those headquartered in Democratic states, tend to score higher on CSR ratings than their Republican counterparts. Moreover, Democratic-leaning firms spend about 10% more of their net income on CSR than Republican-leaning firms. However, no evidence indicates firms recover these expenditures through increased sales. The study suggests that social responsibility may benefit stakeholders. Nevertheless, it comes at the expense of firm value since higher CSR ratings are linked to lower stock returns and lower returns on assets.

This study has implications for green finance and highlights how important a company’s political environment is to drive its CSR policies. Companies with a more robust Democratic political environment tend to be more socially responsible, which could be helpful for investors seeking to identify socially responsible companies for investment purposes. The study also emphasizes the need for companies to incorporate environmental considerations into their CSR policies, especially for long-term financial performance.

3.4.2 Corporate governance and environmental externalities

In 2020, Shive et al. researched the relationship between corporate governance and environmental externalities, explicitly focusing on greenhouse gas emissions. The article focuses on the relationship between corporate governance, environmental externalities, and green finance. The research conducted by Shive and Forster ( 2020 ) reveals that private firms are less likely to pollute and incur penalties from regulatory bodies than public firms. The study also shows that mutual fund ownership and better board oversight may decrease externalities within public firms. These findings have important implications for green finance, as variables that drive differences in emissions among public firms may carry over to an international setting.

The authors discuss the potential trade-off between prosocial behavior and profitability in reducing greenhouse gas emissions. They highlight the importance of considering the long-term benefits of prosocial behavior for the firm and suggest that engaging institutional investors in addressing climate risks and promoting ESG practices may help shift the equilibrium level of prosocial behavior towards more sustainable practices. The article concludes that green finance, including ESG adoption and engagement, can effectively promote sustainable practices among firms and investors.

3.4.3 Legal origins and corporate social responsibility

Liang and Renneboog ( 2017 ) explore the relationship between legal origins and corporate social responsibility (CSR) ratings. Their paper highlights that legal sources significantly determine cross-country differences in CSR ratings. Specifically, companies from civil law countries have higher CSR ratings than those from common law countries, which the researchers argue is due to the greater emphasis on stakeholder rights and social control in civil law legal systems.

Companies from civil law countries may be more likely to prioritize environmental concerns and engage in sustainable business practices, which has implications for green finance. Additionally, companies from civil law countries may be more responsive to ecological crises, address environmental risks, and promote sustainability. Environmental, social, and governance (ESG) factors are increasingly important in green finance. While the study has limitations, such as the lack of causality and potential endogeneity issues, it provides valuable insights into the relationship between legal origins and CSR ratings. It highlights the importance of considering lawful sources in understanding a company's commitment to sustainability and environmental responsibility.

3.4.4 CSR Disclosure and Implications for green finance

Chowdhury et al. ( 2021 ) investigate the competitiveness of foreign firms listed on U.S. capital markets in providing better corporate social responsibility (CSR) disclosure and the potential for such transparency to give them a competitive advantage over their U.S. counterparts. By utilizing environmental, social, and governance disclosure scores, the study reveals that foreign firms disclose more CSR information than comparable U.S. firms, particularly in the environmental and social dimensions. Additionally, foreign stocks exhibit lower idiosyncratic volatility, better liquidity, and higher institutional ownership than equivalent U.S. stocks, potentially because of their higher level of CSR disclosure. The authors highlight the increasing importance of CSR to investors worldwide and the positive correlation between a multinational company's degree of multinationalism and corporate social performance.

The study underlines the necessity for foreign firms listed on U.S. markets to effectively communicate their CSR-related initiatives to U.S. investors to enhance their reputations, visibility, and competitiveness. However, the authors note that while foreign firms listed on U.S. markets are sufficiently transparent in disclosing their CSR activities to U.S. investors, they must also better communicate their governance-related initiatives to remain competitive. A higher level of disclosure for all three primary areas of CSR activities benefits foreign firms listed on U.S. markets.

3.4.5 CSR, social capital, and firm performance

In their study, Lins et al. ( 2017 ) examine the relationship between corporate social responsibility (CSR), social capital, and firm performance during the 2008–2009 financial crisis. During the crisis, firms with high social capital, measured by CSR intensity, outperformed firms with low social capital by at least four percentage points. Building firm-specific social capital through CSR can be considered an insurance policy that pays off when investors and the overall economy face a severe crisis of confidence. The findings also indicate that social and financial capital can be important determinants of firm performance and identify circumstances under which CSR can benefit. From a green finance perspective, the study highlights the importance of CSR activities that contribute to environmental sustainability in building social capital and fostering trust between a firm and its stakeholders.

3.4.6 Supply chain collaboration and green finance

Dai et al. ( 2021 ) emphasize the critical role of supply chain collaboration in promoting sustainable business practices, a subject closely related to green finance. The study highlights the importance of the active roles played by large corporations in their suppliers’ CSR initiatives and standards. It notes that collaborative CSR efforts between suppliers and customers improve both parties' operational efficiency and firm valuation. The study also found that customers tend to establish relationships with socially and environmentally responsible firms, influencing their suppliers' CSR practices through positive assortative matching and decision-making processes. However, the study also highlights the challenges of promoting sustainability across global supply chains, particularly in specific socio-cultural and institutional environments. Overall, the study provides valuable insights into the role of supply chain collaboration in promoting sustainable business practices, which represent an essential aspect of green finance.

3.5 ESG and sustainable investing

This section discusses the importance of ESG criteria in investment decisions and how they impact green finance. These articles emphasize the importance of impact investing and sustainable finance in achieving environmental responsibility and a sustainable future. As a result, they emphasize the potential risk of greenwashing and the need to address scope insensitivity in sustainable investing. Furthermore, they advocate for adopting cleaner technologies and market-based environmental policies. To drive green finance initiatives and promote sustainable investments, the findings have practical implications for investors, asset managers, and policymakers.

3.5.1 Insights for responsible investing and the ESG-efficient frontier

The research conducted by Pedersen et al. ( 2021 ) presents a theory that establishes a connection between the ESG scores of stocks and their ability to provide insights into firm fundamentals and influence investor preferences. Integrating ESG factors into the portfolio construction process makes it possible to enhance risk-adjusted returns and gain a framework for assessing the costs and benefits of responsible investing through the ESG-efficient frontier. This valuable tool enables investors to optimize their portfolios to attain financial and environmental objectives. Given the increasing significance of green finance, which aims to foster environmentally sustainable economic growth, the ESG-efficient frontier holds excellent relevance. However, it is worth noting that the study primarily concentrates on the financial aspects of ESG investing, potentially overlooking its broader social and environmental impacts. Nevertheless, the ESG-efficient frontier remains invaluable for investors and researchers delving into responsible investing.

3.5.2 The impact of sustainable investing on asset prices and corporate behavior

The study by Pástor et al. ( 2021 ) examines the impact of sustainable investing on asset prices and corporate behavior through an equilibrium model that considers financial objectives and ESG criteria. The study shows that green assets have lower expected returns but can outperform brown assets when positive shocks hit the ESG factor, indicating that investors may need to adopt a longer-term perspective and be willing to accept lower returns in exchange for a positive social impact. The study also demonstrates that sustainable investing can lead firms to become greener and induce more real investment by green firms and less by brown firms, thus highlighting the positive social impact of sustainable investing. The study's findings are highly relevant to green finance, as they indicate a demand for green finance products and services that cater to investors with strong ESG preferences. In addition, the study highlights the challenges associated with sustainable investing, such as adopting a longer-term perspective and balancing financial returns with social impact. Overall, the study provides valuable insights into the potential benefits and challenges associated with sustainable investing and its impact on the financial industry, corporate behavior, and the environment, thereby emphasizing the importance of considering ESG criteria in investment decisions.

3.5.3 The impact of CSR performance on market quality

Clancey-Shang and Fu ( 2022 ) investigate how the market quality diverges between high-ESG and low-ESG firms in the stock market in response to the Russia-Ukraine conflict. Using an event-study approach, the study finds that better CSR performance alleviates the market quality deterioration associated with the outbreak of the conflict for US-listed foreign firms. Such an effect is insignificant for domestic U.S. firms. The study also finds that foreign firms experience more severe market quality deterioration than their U.S. counterparts. The findings support the theories and observations that better CSR performance leads to improved market turmoil and helps alleviate the decline of the information environment at times of great political uncertainty. The study contributes to understanding the association between CSR and market quality, particularly during significant geopolitical events.

This study supports the idea that companies with strong ESG practices and disclosure may be more attractive to investors seeking to invest in sustainable and environmentally friendly companies. This is particularly relevant given the increasing interest in green finance and sustainable investing, whereby investors increasingly seek to invest in companies that prioritize environmental and social responsibility. Companies prioritizing ESG practices and disclosure may benefit from increased investor demand and improved stock market performance.

3.5.4 Externalities of financial constraints

The study by Xu and Kim ( 2022 ) examines the impact of financial constraints on corporate environmental policies and finds that firms facing such conditions tend to increase their toxic emissions due to weighing the costs of abatement against potential legal liabilities. The study highlights the negative externalities of financial constraints, such as environmental pollution and public health costs, and recommends implementing non-random auditing policies to incentivize firms to adopt environmentally sustainable practices. This study is relevant to green finance, which aims to promote sustainable development by providing incentives for environmentally sustainable practices, even in the face of financial constraints. However, the study's limitations include potential data representativeness issues and a need to consider probable innovations in environmentally sustainable practices.

3.5.5 Banks' influence on corporate ESG policies

The study by Houston and Shan ( 2022 ) explores the connection between banking relationships and corporate ESG policies. The study reveals that banks are crucial in promoting ESG policies among their borrowers. According to the study, those who borrow from banks with better ESG profiles are more likely to improve their ESG performance over time. Furthermore, banks' influence is concentrated on environmental and social issues that focus the spotlight on lenders, leading to severe reputational and financial consequences. These findings have significant implications for green finance, indicating that banks' ESG policies may influence lending decisions toward companies with similar ESG profiles. This research highlights the role of banks in promoting sustainable finance practices. Companies prioritizing ESG considerations may have a competitive advantage in accessing green finance from banks.

3.5.6 ESG preferences and stock performance

The study by Bansal et al. ( 2022 ) focuses on socially responsible investing (SRI) stocks and their performance during different economic periods. The researchers find that high-rated SRI stocks outperform low-rated ones during favorable economic conditions and underperform during unfavorable conditions, indicating that investor demand for SRI is wealth dependent. This study's findings provide insights into how investors' ESG preferences can impact the market, leading to variations in abnormal returns. This information may be relevant to investors who prioritize ESG factors in their investment choices and help to guide their decisions.

Socially responsible investing (SRI) is one aspect of sustainable investing that considers environmental, social, and governance (ESG) factors in investment decision-making. Investors who prioritize ESG factors in their investment choices may be interested in the findings of this article as it provides insights into the performance of SRI stocks during different economic times. Additionally, the report suggests that demand-driven preference shifts toward SRI may be a factor in the variation of abnormal returns, indicating that investors' ESG preferences can influence the market. Therefore, understanding the market demand for sustainable investments helps to guide investors’ decisions and impacts the flow of capital toward more sustainable investments.

3.5.7 Constructing climate change hedge portfolios

Engle et al. ( 2020 ) introduce a novel approach to constructing climate change hedge portfolios using the textual analysis of newspapers to extract climate news innovations and third-party ESG scores to model climate risk exposures. This methodology could help investors manage climate risk in their portfolios and invest in companies better prepared to address climate change. The study suggests that more and better-quality data improve the methodology and encourage exploration by adding more assets to hedge portfolios. The study also highlights the importance of developing alternative definitions of climate change risks to better manage diverse types of climate risks. This methodology provides valuable insights for investors seeking to manage climate risk exposure in their portfolios. It highlights the potential of textual analysis and ESG scores to build effective climate change hedge portfolios in green finance.

3.6 Climate change and risk management

The papers discussed in this section shed light on the critical intersection of climate change and risk management, emphasizing the implications of environmental risks for financial decision-making. These articles cover diverse topics, including the importance of green finance, climate risk disclosure for institutional investors, and the relationship between abnormal temperatures, climate change awareness, investor behavior, and economic activity. The findings underscore the need for environmentally conscious investing and effective communication strategies to increase public awareness and support for climate policies. Evaluating climate risk and political uncertainty is crucial when making investment decisions, particularly for fossil fuel companies facing financial troubles due to stranded assets. These studies provide valuable insights into the role of finance in addressing climate change and promoting sustainable economic growth, underscoring the urgency of mitigating environmental risks.

3.6.1 The impact of abnormal local temperatures on climate change and markets

The study by Choi et al. ( 2020 ) explores the links between abnormal local temperatures, climate change awareness, investor behavior, and economic activity. Analyzing data from seventy-four cities, the study finds that people's attention to climate change increases during abnormally warm months, mainly when the temperature is in the city's top quintile. Furthermore, investors revise their beliefs about global warming during hot months, with stocks with lower climate sensitivities outperforming those with higher climate sensitivities. The study suggests that abnormal local temperatures serve as “wake-up calls” for investors to focus on climate change risks. Public awareness and education on climate risk are essential to increase the efficacy of climate policies and campaigns. The study's findings have implications for investors and policymakers, as the study suggests a shift towards more environmentally conscious investing and highlights the importance of effective communication strategies to increase public awareness and support for climate policies.

3.6.2 The impact of green finance on low-carbon energy, sustainable development

Ionescu ( 2021 ) presents a well-executed empirical study that evaluates the impact of green finance on low-carbon energy, sustainable economic development, and climate change mitigation during the COVID-19 pandemic. The study uses data from reputable sources such as NGFS and the UN and analyzes the transition to a low-carbon sustainable economy through various analyses and estimates.

The study presents a valuable statistical data analysis, including descriptive statistics compiled from the completed surveys. However, more information on the limitations and areas for improvement in future research could be provided to improve the study. Additionally, the study would benefit from a more detailed explanation of the weighting variables used in the data to aid readers' understanding.

Explaining the research model and methods used to analyze and estimate the data in greater detail would also enhance the study’s transparency and replicability. Also, the study should detail how the findings may affect policy and practice. Readers can apply the results in real-world scenarios to mitigate climate change and promote sustainable economic development. Lastly, the study highlights future opportunities for green finance, but it can be improved by providing stakeholders with recommendations on taking advantage of them.

Ionescu’s study provides a valuable empirical analysis of the impact of green finance on low-carbon energy, sustainable economic development, and climate change mitigation during the COVID-19 pandemic. The study uses data from reputable sources and provides a statistical analysis; however, it could be enhanced by providing more excellent details concerning the research model and methods, implications and limitations of the findings, and the weighting variables used on the data.

3.6.3 Impact of climate risk beliefs

Bakkensen and Barrage ( 2022 ) highlight the impact of climate risk beliefs on coastal housing markets and the implications for green finance. The study reveals a significant prevalence of flood risk misperceptions among coastal residents, which leads to overvalued coastal housing prices. The paper suggests that accurate and transparent information about climate risks is critical for efficiently pricing coastal assets, and green finance can support such information disclosure and improve market efficiency.

Furthermore, the study underscores the need for policies incentivizing climate risk mitigation and adaptation. Green finance supports these policies by financing low-carbon and resilient infrastructure projects and developing innovative financial instruments promoting climate resilience. Overall, the paper highlights the complex interplay between climate risk beliefs, market dynamics, and policy outcomes and emphasizes the role of green finance in addressing these challenges.

3.6.4 Navigating environmental and economic sustainability through green transformation risks and fostering finance

Green finance, the strategic integration of environmental considerations into financial decisions, is a pivotal instrument for advancing sustainability (Wang et al. 2022 ). This critical shift entails embracing transformation risks, encompassing uncertainties linked to policy shifts, technological disruptions, market dynamics, and regulatory adjustments (Wang et al. 2022 ) (Chenet et al. 2021 ). By harmonizing green finance with supportive policies, the potency of sustainable initiatives can be significantly elevated (Chen et al. 2023 ). The research underscores the imperative for financial markets to duly account for climate transition risks and opportunities (Chenet et al. 2021 ). Addressing transformation risks through coordinated policy frameworks emerges as a paramount strategy for fostering triumphant, enduring environmental and economic metamorphosis (Chen et al. 2023 ) (Xiong et al. 2023 ).

Schumacher et al.'s ( 2020 ) article delves into the role of sustainable finance and investment in Japan, particularly its potential to mitigate escalating climate risks. The study analyzes the symbiotic relationship between sustainable finance and climate risk mitigation, spotlighting asset pricing dynamics within sustainable equity portfolios and their ramifications for the financial sector. Although the article refrains from providing an explicit outline of transformation risks, it systematically assesses the opportunities and obstacles to sustainable investments within Japan's financial landscape amid climate risks. This exploration underscores the invaluable contribution of sustainable finance to curtailing climate risks and nurturing a more resilient financial framework.

Within the article, various climate-related risks—from physical to transitional—emanate within sustainable finance and the journey toward a zero-carbon economic trajectory. These risks encompass disclosures concerning climate-related risks, exposure to physical climate hazards, and climate-related transitional risks stemming from regulatory reactions, technological advancements, and evolving societal dynamics. Transitional risks arising during the transition to low-carbon economies can lead to stranded assets, affecting sectors such as coal power, manufacturing, and agriculture. Additionally, the Japanese economy faces risks from imported transitional effects due to its reliance on foreign commodities. Legal and fiduciary obligations tied to climate risks are prominently highlighted, with boards compelled to factor in these risks. The Japanese financial sector, owing to its holdings, is subject to policy, legal, technological, market, and reputational risks. This extensive array of risks underscores the complexities and deliberations in aligning financial systems with sustainability objectives.

3.7 Renewable energy and sustainable economic growth

The papers under discussion in this section highlight the critical role of green finance in fostering sustainable economic growth and addressing climate change. Specifically, they emphasize how large investors, such as the Big Three asset managers, can leverage their influence to encourage portfolio companies to reduce carbon emissions, thereby highlighting the potential of aligning financial incentives with sustainable outcomes. Furthermore, the paper stresses the need for active monitoring and engagement with portfolio companies on environmental issues to ensure the success of green financing initiatives.

While recognizing Green Finance's opportunities, the paper also highlights its implementation challenges. There is a need for more comprehensive and comparable data on green financing activities across different regions and industries. We gain valuable insights into how green finance can contribute to sustainable economic development and climate mitigation. The public and private sectors can benefit from research and efforts to promote green finance.

3.7.1 The influence of large investors on carbon emissions

The article by Azar et al. ( 2021 ) contributes to the historical development of green finance by showing how large investors such as the Big Three can influence portfolio companies to reduce their carbon emissions, which is crucial for sustainable economic growth. Green finance emphasizes the importance of monitoring portfolio companies' environmental performance and engaging with them. This study proves that green finance can mitigate climate change and facilitate sustainable economic growth.

The study by Azar et al. ( 2021 ) shows that the Big Three's engagement efforts with individual firms are related to CO2 emissions, and they focus on large firms in which they hold a significant stake. Low carbon emissions are also associated with higher ownership among the Big Three. To achieve sustainable economic growth, large investment institutions such as the Big Three can significantly impact firms' efforts to reduce carbon emissions. The study highlights the potential financial incentives for the Big Three to engage with firms on environmental issues, including the belief that reducing CO2 emissions enhances the value of their portfolios, attracting or retaining investment clients who care about the environment, and climate risk implications for portfolio firms.

The study's authors warn that their data do not prove that corporate CO2 emissions are directly affected by the Big Three. It will take more research to establish a causal connection. Additionally, the researchers point out that the Big Three are not necessarily monitoring society at the optimal level. However, the analysis shows that green financing can help enhance long-term economic growth and slow global warming.

3.7.2 Advancing green finance, sustainability, and carbon emission risk for economic growth

Green finance is crucial in promoting sustainable economic growth and mitigating climate change, and renewable energy, CO2 emissions, and research and development are essential factors in advancing green financing efforts. However, green finance research also has limitations and areas for improvement.

In terms of the theoretical framework, more research is needed to understand the mechanisms through which financial incentives can be aligned with sustainability outcomes. Green finance in different regions and industries also requires more comprehensive and comparable data on green financing activities across other countries and sectors. Finally, in terms of green finance and sustainability, there is a need for more research on the social impact of green financing and the potential trade-offs and unintended consequences of green financing initiatives.

Bolton and Kacperczyk ( 2021 ) provide crucial evidence to investors already demanding compensation for exposure to carbon emission risk. The findings might not apply to businesses in other nations, and the link between carbon emissions and stock returns is only sometimes causative. Additionally, not all investors may be accounting for carbon risk, underscoring the significance of enlightening investors about the hazards of climate change, and urging them to consider the long-term risks associated with carbon-intensive equities. The report emphasizes the value of ongoing analysis and initiatives to advance sustainability and green finance.

3.7.3 Green finance, geopolitical risk, and chinese investments in renewable energy

Li et al. ( 2022 ) explain how geopolitical risk, volatility, and green finance affect Chinese investments in renewable energy sources. To grasp the essence of the geopolitical risk concept, this review turns to Caldara and Iacoviello's work in 2022 . They define geopolitical risk as the interplay of threats, realizations, and escalations of adverse geopolitical events. This term encompasses conflicts, terrorism, and tensions among states and political actors, affecting the stability of global relations. Caldara and Iacoviello's insights underpin the construction of an index that quantifies these risks by analyzing news articles. The Geopolitical Risk (GPR) index quantifies the prevalence of articles discussing adverse geopolitical events and threats every month. Guided by the definition of geopolitical risk and insights from geopolitical literature, this curated vocabulary captures various dimensions. This index is a valuable tool for researchers to dissect and analyze the nuanced components of geopolitical risk, offering insights into different facets and allowing for detailed exploration at monthly and daily frequencies.

Li et al.'s study showcases, environmental financing (in the form of ecological bonds) and green laws like environmental taxes have a significant and beneficial impact on encouraging investment in renewable energy sources in China. The report emphasizes the need to support green businesses in China to stimulate long-term investment in renewable energy sources. The study also demonstrates that green rules mitigate the link between green funding and investments in renewable energy. The study uses a variety of benchmarks to analyze micro- and macro-level data thoroughly and uses regression estimation techniques.

However, the study's generalizability is constrained because it exclusively focuses on China, and the findings might only apply to some nations or locations. The analysis only analyzes the brief period from 2015 to 2020, which may not reflect long-term trends and changes in the link between green finance, volatility, geopolitical risk, and investments in renewable energy sources. The research may only have considered pertinent variables that might affect investments in renewable energy sources, such as technological advances, the state of the economy, and changes in legislation.

The authors could consider extending the research period to capture long-term trends and changes in the association between volatility, geopolitical risk, and investments in renewable energy sources to enhance the analysis. The authors may broaden the study's scope to incorporate more nations or areas to make the results more universally applicable. Finally, to address potential biases and enhance the accuracy of the findings, the authors may consider using various data sources and methodologies.

3.8 Oil price, trade and green finance

This section explores two studies that provide valuable insights into the relationship between green finance and critical economic factors. These studies contribute to understanding the interplay between oil price fluctuations, labor investment, trade openness, green finance, and natural resource utilization. They underscore the importance of considering environmental factors and the need for comprehensive analysis and contextual information in examining these relationships. The findings highlight the potential of green finance in promoting sustainable investment practices and improving natural resource utilization while also calling for further research and the integration of green finance and trade openness to enhance sustainability.

3.8.1 Oil price fluctuations and labor investment

Liu et al. ( 2022 ) examine the impact of the 2014–2015 oil price decline on Chinese firms' labor investments. They find that firms in industries with significant negative oil price risk exposure increased their employment levels by 16.4% after the oil price plummeted. Oil price fluctuations are essential for the Chinese government and its enterprises when making economic decisions related to the labor force. This study illustrates the need to consider the impact of oil prices on firms' labor investments when making investment decisions, which could be relevant to green finance. As well as promoting sustainable investment, green finance can facilitate the transition to a low-carbon economy by incorporating environmental factors such as oil prices.

3.8.2 Trade openness and natural resource utilization

The study by Wu ( 2022 ) provides valuable insights into the relationship between trade openness, green finance, and natural resource utilization in China. The vector autoregression (VAR) model analyzes data from 1981 to 2020. The findings reveal that natural resource use significantly impacts trade openness and green financing, and coal and oil consumption demonstrate particularly negative influences on green finance. Furthermore, the study suggests that gas consumption may promote sustainable trade. However, the study could benefit from providing more contextual information about the nation being analyzed and considering other factors that may influence trade openness and green financing.

Moreover, the study's generalizability could be enhanced by extending the analysis to other nations or regions to establish the universal relationship between trade openness and green financing. Furthermore, while the study suggests that green finance does not significantly impact natural resource use, it recommends that green funding be made more practical if it aligns more closely with trade openness. The study could elaborate further on how green finance and trade openness can be better integrated to improve natural resource utilization and sustainability.

It provides valuable insight into the relationship between Chinese trade openness, green financing, and natural resource utilization. A more detailed context and consideration of other factors that may affect this relationship would enhance the generalizability of the study. Extending it to other nations or regions would increase its generalizability.

4 Future directions in green finance

4.1 recommendations for expanding the scope based on literature review.

We propose recommendations for expanding the research scope and exploring critical areas of investigation in this research review to enhance our understanding of green finance and its role in addressing climate change and decarbonization.

Research emerging markets' efforts and challenges in promoting green finance, identifying strategies to attract sustainable investments, and supporting climate-related projects.

Research innovative green financial instruments, evaluating their effectiveness in mobilizing capital for sustainable projects and promoting environmental sustainability.

Analyze how technology, including fintech and blockchain, can enhance transparency, efficiency, and accessibility in sustainable investments by advancing green finance.

Analyze the role of institutional investors in driving green finance initiatives, including their allocation strategies and ESG integrations.

Discover how green finance initiatives contribute to sustainable development and social inclusion, ensuring benefits reach marginalized communities.

Assess how green finance investments enhance resilience to climate change impacts through climate adaptation and mitigation projects.

Evaluating long-term financial returns, job creation, and economic growth of green finance initiatives.

Identify and overcome barriers to green finance adoption, proposing strategies for overcoming obstacles and accelerating sustainable financial adoption.

Compare Green Finance Initiatives Globally: Conduct a comparative analysis of green finance initiatives in different countries, sharing best practices and success factors to foster cross-border collaboration.

Research on the role of NGOs and civil society in green finance advocacy and environmental sustainability.

4.2 Exploring future imperatives

Informed by current research and its inherent gaps, this exploration delves into the terrain of future imperatives.as the blow suggestion:

Fostering Responsible Digital Transformation : As the financial sector embraces technological advancements like fintech and blockchain, there exists a pressing necessity to ensure that these innovations harmonize with the principles of green finance. Considering current research trends, an avenue of exploration lies in investigating how digital solutions can magnify the transparency and efficiency intrinsic to sustainable investments. Simultaneously, it is imperative to avert inadvertent environmental repercussions, notably excessive energy consumption and the proliferation of electronic waste.

Propelling Green Finance in Developing Economies : While nowadays, research in the green finance narrative briefly seems to pay attention to emerging markets, a more in-depth exploration within the precincts of the ongoing research process is indispensable. Unraveling the intricacies of economies' specific challenges while implementing green finance initiatives becomes paramount. These regions' distinctive socio-economic frameworks, intricate regulatory mazes, and labyrinthine financial architectures necessitate bespoke strategies that entice sustainable investments and support climate-oriented endeavors.

Weaving the Circular Economy Paradigm : Green finance stands poised as a pivotal force in shepherding the transition from a linear economic model to the regenerative circular paradigm. Embedded within the ongoing research process is the exploration of how financial tools and incentives can serve as catalysts for adopting circular economy practices—ranging from recycling to reutilization and waste minimization. This trajectory of inquiry unveils a novel avenue of exploration.

Ensuring the Endurance of Green Financial Instruments : While recent studies briefly acknowledge innovative green financial instruments, an ongoing research process could venture deeper into the terrain of their long-term viability. The focus here lies in deciphering how these instruments can dynamically adapt to the shifting currents of market conditions, technological advancements, and evolving environmental priorities—all while effectively upholding the mantle of sustainability.

Confluence of Biodiversity Preservation and Financial Dynamics : While the studies in this review focus primarily on carbon neutrality and climate dynamics, an intriguing domain to probe within the ongoing research process lies at the crossroads of green finance and biodiversity conservation. There lies an untapped potential to scrutinize how financial mechanisms can emerge as drivers that incentivize endeavors to safeguard and restore ecosystems, thereby safeguarding biodiversity and propagating sustainability.

Advancing Climate Equity through Green Finance : Imprinting the seal of priority upon marginalized and vulnerable communities within the ambit of green finance initiatives underscores its essence. The perspectives of current research in the green finance scope research process must pivot toward elucidating how the architecture of climate justice can be seamlessly integrated into the fabric of green finance projects, ensuring the just and equitable distribution of benefits.

Catalyzing Behavioral Change via Financial Education : The propagation of green finance necessitates a paradigm shift in individual and institutional behaviors. Today research in sustainability and green finance can delve into the efficacy of financial education programs in disseminating awareness about green finance, sculpting decision-making paradigms, and nurturing a cultural ethos steeped in sustainability.

Unveiling Ethical Considerations in Impact Investment : The potential ethical conundrums that linger within the domain of impact investing warrant comprehensive exploration. As part of the ongoing research process, delving into the ethical dilemmas that unfurl when investors accord primacy to non-financial gains presents an opportunity to navigate the delicate equilibrium between social and financial returns, all while upholding the tenets of ethical integrity.

4.3 Recommendations for expanding the scope based on keywords analysis

Based on the analysis of the keywords presented in Fig.  4 , it is evident that various avenues for future research exist in this domain. Based on the keyword analysis of the paper, the following recommendations can be made:

The government, financial institutions, and businesses should prioritize funding for environmentally friendly projects to combat climate change and achieve carbon neutrality.

Establish robust regulatory frameworks that facilitate green finance and integrate carbon–neutral practices. Clear and supportive policies will foster the growth of sustainable finance.

Encourage the diversification of funding sources for climate-related projects, including the Green Climate Fund, to mitigate risks associated with conventional finance and attract more investments.

The fourth action is to conduct further research to understand better the effectiveness of green financing and its impact on decarbonization. This will help make better decisions and foster innovation in the field.

The emphasis must be placed on social equity and transparency in green finance initiatives. We should consider social preferences and the public's involvement when shaping financial practices.

Investing decisions should consider Environmental, Social, and Governance (ESG) factors to bolster risk-adjusted returns and promote responsible investing.

Financial institutions and industries can anticipate and mitigate potential losses related to environmental factors by evaluating and communicating climate risks and political uncertainties.

Aim to encourage impact investing, where investors accept lower financial returns for non-financial benefits. Institutional ownership can influence companies to improve their environmental and social performance.

Promote investments in renewable energy sources to achieve sustainable economic growth. Renewable energy projects contribute to reducing carbon emissions and advancing sustainability.

Policymakers and investors need to recognize the impact of geopolitics on green finance and sustainable development. Global cooperation and trade openness are essential for addressing sustainability challenges.

For sustainability projects to succeed, stakeholders, including financial institutions, governments, and the public, should work together to support green finance initiatives.

Make sure that comprehensive and comparable data are available on green financing activities. Access to accurate data will enable policy formulation and decision-making.

A network analysis of the primary subgroup of keywords

The original figure file with high resolution will be available upon request

Our understanding of green finance and its role in promoting sustainable development can be advanced by implementing these recommendations and broadening the scope of research.

5 Conclusion

This comprehensive review indicates that green finance is crucial to advancing sustainable development and combating environmental issues. The examined literature underscores the importance of substantial investments in sustainable and low-carbon initiatives and the need for robust regulatory frameworks to facilitate green financial availability and the integration of carbon–neutral practices.

The reviewed studies highlight the positive impact of green financing on decarbonization efforts and call for further research to enhance our understanding of its effectiveness. The literature also explores the intersection of climate change and risk management, the impact of investor preferences on sustainable investments, and the significance of environmental, social, and governance (ESG) criteria in investment decisions. Green finance promotion involves a variety of suggestions. Enhancing the regulatory framework for green finance through incentives, regulations, and knowledge sharing is essential. It is possible to improve climate finance strategies by analyzing the benefits of carbon–neutral practices in green finance and evaluating institutions like the Green Climate Fund. In addition, it is essential to examine the impact of green financing on decarbonization efforts in various countries and the impact of sustainable spending on investment decisions.

Furthermore, essential considerations include integrating ESG criteria into investment decisions, addressing implementation challenges, and improving data collection in green financing activities. Supporting green finance, sustainable economic growth, and environmental risk mitigation requires collaboration, stakeholder engagement, and policy measures. This review will give investors, policymakers, and researchers valuable insights into promoting sustainable investments and driving green finance initiatives. The potential for green finance to foster sustainable economic development can be realized when financial incentives are aligned with sustainable outcomes, environmental issues are actively monitored, and ecological policies are based on market forces.

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Fu, C., Lu, L. & Pirabi, M. Advancing green finance: a review of sustainable development. DESD 1 , 20 (2023). https://doi.org/10.1007/s44265-023-00020-3

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Article Contents

Sustainable finance.

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Alex Edmans, Marcin Kacperczyk, Sustainable Finance, Review of Finance , Volume 26, Issue 6, November 2022, Pages 1309–1313, https://doi.org/10.1093/rof/rfac069

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Sustainable finance—the integration of environmental, social, and governance (“ESG”) issues into financial decisions—is an increasingly important topic. Within companies, sustainability is no longer an ancillary issue confined to corporate social responsibility departments, but a CEO-level issue fundamental to the core business. Within the investment industry, sustainability used to be the exclusive domain of “socially responsible investors” who had social as well as financial objectives, but is now mainstream and includes investors with purely financial goals. This article introduces the RF Special Issue on Sustainability. It highlights three reasons for the rapid rise in sustainable finance—its financial relevance, its contribution to nonfinancial objectives, and investor tastes. It then summarizes the eight articles in the Special Issue, in particular drawing out their contributions to the literature. Finally, we offer ideas for future research.

Sustainable finance—the integration of environmental, social, and governance (“ESG”) issues into financial decisions—is an increasingly important topic. Within companies, sustainability is no longer an ancillary issue confined to corporate social responsibility departments, but a CEO-level issue fundamental to the core business. Within the investment industry, sustainability used to be the exclusive domain of “socially responsible investors” who had social as well as financial objectives, but is now mainstream and includes investors with purely financial goals. More broadly, the sustainability of business has a crucial impact on how it is viewed by wider society, including policymakers and citizens, including its social license to operate.

The increasing interest in sustainability among investors—which, in turn, flows through to companies—stems from three forces. The first is financial relevance . Companies with a positive impact on society may be more likely to attract customers and employees, capture business opportunities related to societal trends such as climate change and financial inclusion, and avoid environmental fines or regulatory intervention. If these benefits are not fully priced in, such companies will generate high risk-adjusted returns, and thus even investors with purely financial motives will prefer them. The second is nonfinancial objectives . For example, a pension fund invests on behalf of its beneficiaries, who care not only about their income in retirement but the state of the planet and the cohesiveness of society. Thus, they may support a company increasing its societal impact even if doing so sacrifices profits.

The third is tastes— that investors prefer to hold “green” stocks over “brown” stocks. Note that the second and third channels are subtly different. Under the second channel, a sustainable investor would only sacrifice financial returns if doing so has a causal impact on societal returns—for example, divesting from a “brown” stock increases its cost of capital and hinders it from expanding. Under the third channel, no causal effects are necessary. Even if the supply of capital is perfectly elastic, so divestment has no price impact, a sustainable investor will still boycott a brown stock since she suffers disutility from holding such a company. 1

Due to this increasing importance, the Review of Finance launched a Special Issue on Sustainable Finance. Among 176 submissions we received between June and December 2021, we aimed to publish papers that meet the following ordered criteria: (i) papers that are high-quality academic work; (ii) papers that are of interest to a mainstream finance audience, not only readers who work in sustainable finance; (iii) papers that have implications for both theoretical and empirical research, and for both academia and practice. We sought to publish papers across all major research areas: corporate finance, asset pricing, financial intermediation, behavioral finance, and mutual funds. This Special Issue contains eight papers that satisfied the above criteria. We summarize their content and placement in the broader discussion on the topic in the order in which they appear in the issue. We would like to emphasize the important role of the reviewers, whose hard work has enabled us to put this issue together. Their input has been invaluable to the success of this endeavor.

One key challenge in sustainable finance is how to evaluate the sustainability of a company. In “Aggregate Confusion: The Divergence of ESG Ratings,” Florian Berg, Julian Koelbel, and Roberto Rigobon document a significant discrepancy between the ESG ratings issued by six prominent ESG rating agencies: Sustainalytics, Moody’s ESG (formerly Vigeo-Eiris), S&P Global (formerly RobecoSAM), Refinitiv (formerly Asset4), MSCI, and KLD (discontinued in 2017). They found an average pairwise correlation between rating agencies of 38%-71%, substantially lower than the 99% for credit ratings. They found that 56% of the divergence stems from measurement (e.g., labor practices could be measured by workforce turnover, or number of labor cases against the firm), 38% is due to scope (e.g., some rating agencies consider lobbying an ESG factor, others do not), and 6% results from different weightings. Their findings have important implications for both academics and practitioners. For academics, the choice of rating agency for empirical research is not innocuous, and it is important to demonstrate robustness to other providers. For practitioners, ESG ratings should be viewed as opinion, not fact. Responsible investors should not choose stocks by simply following one provider’s rating.

Given information about a company’s ESG performance, how does it affect asset prices, both theoretically and empirically? “A Sustainable Capital Asset Pricing Model” by Olivier David Zerbib is an important step in answering these questions. The article proposes a model in which sustainability features as an important force driving investors’ portfolio decisions. The main contribution of the article is to show that expected returns can be decomposed into a part that reflects the negative exclusion preferences, along the lines of Merton (1987) , and the part that reflects tastes for ESG. Using the evidence from USA sin stocks, the article shows that the exclusion forces contribute about 2.7% per year to the observed risk premia and the taste forces add on roughly 2% per year extra.

Many commentators point to the growth in assets under management by UN Principles for Responsible Investment (“PRI”) signatories, from $6.5 trillion in 2006 to $121 trillion by the end of 2021, as evidence of the rise in sustainable investing. But does signing the PRI mean anything? In “Do Responsible Investors Invest Responsibly?”, Rajna Gibson Brandon, Simon Glossner, Philipp Krueger, Pedro Matos, and Tom Steffen study whether signatories invest in firms with higher ESG ratings, measured using either Sustainalytics, Refinitiv, or MSCI scores. They find that non-US signatories have superior ESG portfolio-level ESG scores than nonsignatories. However, in the USA, signatories have at best similar ESG ratings, or worse ratings if they have underperformed recently, are retail-client facing, and joined the PRI late—indicators that they may have signed the PRI to greenwash. An alternative explanation is that US investors buy ESG underperformers and engage with them to improve their ratings, but the authors find no such improvements. The different behavior of investors in the USA may be due to commercial incentives to become a PRI signatory being higher, more regulatory uncertainty as to whether ESG investing is consistent with fiduciary duty, and the lower maturity of the ESG market making it easier to greenwash.

One potential explanation for such behavior is that it is not clear that green investors should be avoiding brown stocks once you take into account the importance of hedging. How to hedge the risks in the presence of climate-related externalities is the topic of the theoretical piece “Asset Prices and Portfolios With Externalities” by Steven Baker, Burton Hollifield, and Emilio Osambela. In their model, agents who suffer disproportionately from pollution have a desire to hedge against this. If states in which pollution is high are also states in which polluting firms do well, then investing in polluting firms becomes a natural hedge. Environmentalists, who take pollution as given, will then invest disproportionately in polluting firms in order to hedge this risk, thus driving up capital allocations into such firms. In the process of understanding the economic mechanism behind their results, the authors also consider two countervailing forces that could reverse the surprising results on returns and investments: (i) investors coordinate so that they internalize their effect on pollution and (ii) investors derive nonpecuniary benefit from investing in nonpolluting firms.

Nickolay Gantchev, Mariassunta Giannetti, and Rachel Li tackle the question of whether investor behavior can affect company behavior in “Does Money Talk? Divestitures and Corporate Environmental and Social Policies.” They study whether governance through exit can improve firms’ environmental and social (E&S) policies. The authors find that negative E&S incidents are indeed followed by divestitures, but the magnitudes are relatively small. The authors conjecture that even more powerful than actual exit upon an E&S incident might be the threat of future exit if E&S performance remains poor. Consistent with this conjecture, after an E&S incident, firms decrease their greenhouse gas emissions and improve their E&S scores significantly if they have a high proportion of E&S-conscious investors and the CEO recives equity compensation so is concerned about the effect of investor exit on share prices. These results suggest that the threat of exit improves E&S performance if investors are E&S-conscious and CEO wealth is tied to the stock price.

Much of the financial costs associated with climate finance relates to transition risk ensuing from uncertain technological, political, and policy environment. But financial costs could also result from physical damages affected by climate-related events. The extent to which such physical risk is reflected in asset prices is a topic of “Climate Change Risk and the Cost of Mortgage Credit” by Duc Nguyen, Steven Ongena, Shusen Qi, and Vathunyoo Sila. The authors study the question in the context of mortgage markets. This setting is different from other studies that directly focus on valuations of climate-affected assets, such as real estate or insurance companies. Using data on 1,581,600 first-lien 30-year mortgages from BlackKnight McDash originated in the USA between January 1992 and June 2018 the authors document that financing costs of houses that are exposed to more sea level rise see higher interest rate spreads which are 10.2 basis points larger for mortgages in a zip code where all properties are exposed to SLR relative to a zip with no sea level rise. The interesting feature of this result is that, even though some of the risks may be still distant in the future financial, markets already price them in through the credit contracts.

While much of the literature on sustainable investors’ concerns institutions, Anders Anderson and David Robinson study household investors in “Financial Literacy in the Age of Green Investment.” They survey a large sample of Swedish households on their environmental preferences, such as the relative importance of environmental versus financial goals to them, and show that green households, surprisingly, do not hold green portfolios. One explanation is financial disengagement. Green households are generally uninterested in investing, being less likely to own stocks, check pension balances, or make active pension choices (instead relying on the default allocation). The second is informational constraints, which prevent households from finding investments that match their preferences. For example, they buy mutual funds with pro-environmental names even if they are not ESG-compliant, as classified by the Swedish Pension Authority. Many practitioners and policymakers argue that “people’s capitalism” will force companies to improve environmental performance, but the authors’ results suggest that, without financial literacy, households are unable to reflect their preferences in actions.

Finally, an important question pertaining to sustainable finance relates to portfolio ownership, incentives driving decisions, and performance consequences for investors with designated sustainable principles. In “Responsible Hedge Funds” Hao Liang, Lin Sun, and Melvyn Teo study this question in the context of hedge funds. They show that hedge funds that endorse the PRI underperform other hedge funds after adjusting for risk but attract greater investor flows, accumulate more assets, and harvest greater fee revenues. The authors attribute the main explanation of their findings to the apparent disconnect between the stated mandate and the observed exposure of investors to ESG factors, which is consistent with the story of greenwashing frequently brought up by ESG skeptics.

While we believe that these eight papers make substantial contributions to the area of sustainable finance, many questions are still to be answered. We repeat here the potential research directions that we included in the Call for Papers (with some additions) in the hope that they might spark future research. Needless to say, the Review of Finance will strive to consider high-quality papers that address the following questions for publication in regular issues:

Research on different aspects of sustainability—not only climate but environmental issues beyond climate (including financing of biodiversity protection), and other stakeholders such as employees, customers, communities, and suppliers.

Research using non-US data, studying private companies, or asset classes other than equity.

Research on how company practices (e.g., reporting, signing commitments, governance structures) help to embed sustainability, and how investors do so within their investee companies.

The effect, and potential unintended consequences, of policy and regulation on sustainability.

Research on the extent to which asset prices incorporate, or do not incorporate, sustainability, and whether this is through a cash flow and/or cost of capital channel.

Research on innovation and technological solutions to ESG issues.

Research on the adoption of green energy, emissions abatement, and the value of stranded assets.

Contrarian research, for example, showing that sustainable business practices may not be associated with superior long-term company performance; that sustainable investing may not achieve its desired objectives; or that companies/investors that claim to be sustainable may not actually “walk the talk.”

The effect of public attitudes and the media on sustainability, and the effect of company/investor sustainability practices on public attitudes.

Theoretical models of the effect of sustainable practices by companies, investors, and regulators.

Experimental or survey research on the households’, investors’, or executives’ sustainability preferences or beliefs.

Methodological papers on the evaluation/certification of sustainability datasets and giving best practice on which ones to use and any issues that arise.

Descriptive research that does not make causal claims, as long as “clean identification” is not central to the research question being addressed.

The moral philosopher Bernard Williams (1973) highlights the difference in the following example. Jim, on a botanical expedition in South America, finds himself in a town square. Twenty natives are tied up against the war and about to be killed for protesting against the government. Since Jim is an honored visitor from another land, the captain offers him the privilege of killing one of the natives himself; if he does so, the other natives will be let off. Even though the “societal return” from killing the native is positive, Jim may choose not to do so due to tastes—he suffers disutility from killing.

Merton R. C. ( 1987 ): A simplemodel of capital market equilibrium with incomplete information , Journal of Finance 42 , 483 – 510 .

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Williams B. ( 1973 ): A critique of utilitarianism, in Williams B. , Smart J. J. C. (eds.), Utilitarianism: For and Against . Cambridge University Press , Cambridge .

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Sustainable Finance

Landscape of fields and homes. Indonesia. Photo: © Curt Carnemark / World Bank

Sustainable Finance is the process of taking due account of environmental, social and governance (ESG) considerations when making investment decisions in the financial sector, leading to increased longer-term investments into sustainable economic activities and projects (European Commission). It has become a powerful movement led by regulators,  institutional investors and asset managers globally. 

Sustainability, however, is a complex and evolving topic. The World Bank Group long-term finance unit has been at the forefront of promoting Sustainable Finance globally – though data provision, analytical work, instrument design and technical assistance to  support regulators and investors in our client countries to ‘green’ their financial systems.

The team’s work on sustainable finance  contributes to several initiatives - namely:

1.  The Global Program on Sustainability  which promotes  the use of high quality-data and analysis on natural capital, ecosystem services and sustainability to better inform decisions made by governments, the private sector and financial institutions.  The GPS program consists of 3 key pillars:

Pillar 1: Information-improving global measurements of natural capital and ecosystem services

Pillar 2: Building countries capacity to produce and use natural capital accounting for policy and planning decisions. It currently works with 18 countries to measure and value natural resources

Pillar 3: Incentives- Promoting research on how environmental Factors impact risk and financial return in fixed income markets.

Below is a sample of recent publications contributed to the GPS Knowledge Center including:

• A new Dawn: Rethinking Sovereign ESG
• Riding the Wave: Navigating the ESG landscape for Sovereign Debt Managers 
• Demystifying ESG, Paving Path: Lessons from Chile’s Experience as a Sovereign Issuer for Sustainable Actions
• Unlocking Private Finance for Nature  

2.  The Sovereign ESG Data Portal  is part of the work supported by the Global Program on Sustainability (GPS), which aims to provide governments and investors with information and tools that improve their understanding of sustainability criteria, including through natural capital accounting.  

3.  Climate Support Facility  is a new flagship trust fund which was launched on December 10, 2020.  The facility manages funding provided under a Green Recovery Initiative aimed at helping countries building a low-carbon, climate-resilient recovery from COVID 19. Germany, the United Kingdom and Austria are its first contributors. The facility support technical assistance and advisory services. This new trust fund will:

• Embed specialized economic advisors in key government ministries to assist with climate-informed national recovery strategies;
• Help countries develop macroeconomic models that incorporate climate into national budgets, enhance their NDCs, and support the development of long-term strategies for decarbonization; and
• Generate new analytical work: including geospatial data on climate risk, the impact of COVID-19 on carbon emissions, and the effect of climate policies on jobs and livelihoods.  

4.  IFC Edge . An innovation of IFC, a member of the World Bank Group, EDGE (“Excellence in Design for Greater Efficiencies”) provides market leaders with the opportunity to gain a competitive advantage by differentiating their products and adding value to the lives of their customers. EDGE brings speed, market intelligence and an investment focus to the next generation of green building certification in more than 170 countries. IFC created EDGE to respond to the need for a measurable and credible solution to prove the business case for building green and unlock financial investment.

5. J-CAP is a five-year program initially focused on six priority countries and one sub-region: Bangladesh, Indonesia, Kenya, Morocco, Peru, Vietnam, and the West African Economic & Monetary Union. Going forward, the program will also work with other countries, including Argentina, to support local capital markets development. 

Under the program, country-specific action plans have been produced that mobilize the World Bank’s technical assistance alongside IFC's demonstration transactions and local currency solutions.  Support for green bond issuance and market development, as well as green regulatory frameworks are a core part of the program.

🌐  Long-term Finance

📗  The emerging application of geospatial data for gaining ‘environmental’ insights on the asset, corporate and sovereign level

📘  Striking the Right Note : Key Performance Indicators for Sovereign Sustainability-Linked Bonds (English)

📙  Sovereign Climate and Nature Reporting: Proposal for a Risks and Opportunities Disclosure Framework (English)

📕  Credit Worthy: ESG Factors and Sovereign Credit Ratings

Home » Research

World-leading researchers in sustainable finance

Both financial institutions and the broader financial system must manage the risks and capture the opportunities of the transition towards sustainability. The University of Oxford has world-leading researchers and research capabilities relevant to understanding these challenges and opportunities.

We work globally across asset classes, finance professions, and with different parts of the financial system.

Established in 2012, the Oxford Sustainable Finance Group (OxSFG) is a world-leading, multi-disciplinary centre for research and teaching in sustainable finance. We are the largest such centre globally and are the focal point for Oxford’s capabilities in sustainable finance.

Oxford Sustainable Finance Group research clusters, projects, programmes, and special initiatives

Climate & environmental analytics, machine learning & data science, spatial finance, stranded assets & transition finance.

Energy Transition Risk & Cost of Capital

Sectoral data quality and integrity project.

The Oxford Martin Initiative on Net Zero Recovery

The oxford martin programme on systemic resilience, the oxford martin programme on the post-carbon transition, natural language processing for sustainable finance (nlp4sf), skoll centre for social entrepreneurship.

A diverse, equitable and inclusive learning community of academics, practitioners and students from around the world. Pioneering global learning in Social Entrepreneurship, Systems Change and Knowledge Equity.

Oxford Rethinking Initiative

The Oxford Initiative on Rethinking Performance (ORP) aims to develop a framework for the measurement and operationalisation of corporate purpose.

This will enable sustainable and long-term focussed business behaviour to thrive for the benefit of the economy, investors, planet and society.

The Ownership Project

An estimated 70% of global businesses are family-owned. Our research, teaching, and global conversations bring responsibility and sustainability to their core. The Ownership Project provides a platform for knowledge generation and dissemination. We seek to empirically understand the impact of ownership on businesses, communities, and society — and the key factors shaping sustainable ownership in the future.

Sustainable Finance Research Platform

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The Sustainable Finance Research Platform aims to support a successful sustainability transformation.

How can financing conditions be created that foster investments in sustainability and promote a long-term restructuring of capital flows? What are the risks and opportunities associated with climate change and the transition it requires? What is relevant sustainability information and how can we make it so that players in the financial and real economy benefit from communicating this information transparently?

Sustainable investments

Sustainability risks and chances

Sustainability reporting

Current topics

Corporate sustainability reporting directive (csrd).

Mit der Corporate Sustainability Reporting Directive (CSRD) will die Europäische Union einheitliche Standards für Nachhaltigkeitsberichterstattung etablieren.

„Greenhouse Gas Protocol: Asia-Pacific firms have work cut out on meeting climate-disclosure requirements, executive implementing standard says“

Alexander Bassen leads GHG Protocol’s new Independent Standards Board

Invitation to the WPSF Research Seminar

More than ‘green’ and ‘brown’: How sustainable finance can enable the transition

Publications, pb 1/2024: climate risks and the cost of debt: why climate policy matters.

Climate policy is key to achieving the required CO2 emission reductions for the transition towards a sustainable low-carbon economy. Climate policy causes direct and indirect…

PB 3/2023: Climate transition plans: State of play in EU legislation and policy recommendations

Company transition plans (of real economy and financial market actors) have the potential to become a steering instrument for directing capital flows toward climate neutrality…

PB 2/2023: The role of sustainable investments in the transformation: (further) education as a key element

Sustainable investments can be an important building block in the transformation of the economy and society. There has recently been a growing interest in sustainable…

PB 6/2022: The first ECB bottom-up climate stress test: dealing with data gaps and methodological challenges

The ECB’s “SSM Climate risk stress test,” published in July 2022, provides an important step toward integrating climate change related risks into the banking system.…

PB 5/2022: Standardized stress test scenario can improve climate risk reporting

More and more countries, regions, cities, companies, and financial institutions are defining climate neutrality as a strategic goal. So far, however, it is not possible…

Sustainable Finance Research Centre

Welcome to the Sustainable Finance Research Centre

The global dialogue on sustainable development revolves around integrating environmental considerations with societal concerns to promote human well-being while ensuring the needs of future generations are met. This shift signifies a departure from a narrow focus on economic growth towards a more comprehensive approach to development.

The concept of "sustainable development" was first introduced in the landmark Brundtland Report of 1987. In response, the United Nations established the World Commission on Environment and Development to address urgent global challenges. The commission's report, titled "Our Common Future," laid the groundwork for the Earth Summit in 1992 and the subsequent formation of the Commission on Sustainable Development.

Achieving sustainability requires a collaborative, multidisciplinary effort. While disciplines like natural and social sciences have long embraced sustainability principles, the fields of finance and investment have more recently become integral to this conversation. New branches such as ESG (Environmental, Social, and Governance), climate risk assessment, and green finance have emerged to address these pressing concerns.

The increasing significance of sustainability in finance and investment, exacerbated by the pressing climate crisis, highlights the imperative for academic research to refine theoretical frameworks and emphasize empirical studies that advocate for nature-positive solutions. To bridge the divide between research and industry application, we established the Sustainable Finance Research Centre in partnership with the Institute of Finance at Corvinus University of Budapest.

Our center specializes in empirical research focused on understanding how financial markets and investments influence sustainability. As environmental and societal challenges intensify, there is a growing necessity to reevaluate asset ownership, shareholder value, true cost funding, and the comprehensive evaluation of impacts, including externalities. The responsibility for ensuring a sustainable future rests with all stakeholders—individuals, businesses, and governments alike.

Sustainable Finance Research Forum

The open platform for policymakers, academics, and financial sector community to share experiences and approaches

Join the Sustainable Finance Research Forum!

Our platform provides a space for academics, policy officers, and financial practitioners to discuss approaches and experiences that strengthen the role of open science and knowledge-sharing between the financial sector and the research community.

Our Forum is committed to providing both established and emerging knowledge and scientific support on various issues related to sustainable finance .

Here are some relevant examples:

• Financial implications of climate change
• The role of the financial system in supporting the transition to a more sustainable economy
• Financial instruments and best practices that support the transition
• Directing financial flows towards research and development of sustainable technologies
• How environmental and social aspects can complement each other for an effective transition and their financial implications for the industry and policymakers in Europe
• How innovative financing instruments and technologies, such as artificial intelligence, blockchain, internet of things, and machine learning, can support the transition.

Join us in exploring these crucial topics and building a sustainable future!

Suscribe to our newsletter!

Upcoming events

• Conferences and summits
• External event
• Training and workshops

The Sustainable Finance Research Forum ecosystem

The JRC Summer School on Sustainable Finance takes place annually and brings together the community of academics, policymakers and professionals who work on topics related to Sustainable Finance.

We interview leading economists and practitioners in the Sustainable Finance business.

JRC publications on Sustainable Finance

Materials from the Sustainable Finance Research Forum past events

JRC support to Environmental, Social and Governance Risk Management Framework for the financial sector

Sustainable finance related publications by JRC partners and other parties

To find out more about the JRC's work on similar topics, explore the related JRC portfolios:

Healthy biodiversity and natural capital accounting.

Understanding and acting on risks and opportunities of the future.

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The place for impact-driven academic research and modelling that make finance a key response to sustainability.

What is parc.

PARC purpose is to foster research & data cooperation between academia themselves and with professionals to deliver robust and innovative sustainable finance tools and models and promote their implementation by financial practitioners.

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• Mistra Center for Sustainable Markets
• Misum Research
• Past programs
• Misum research platforms 2015-2019
• Other Sustainable Finance Research

Sustainable finance research projects

Longtermism in investment analysis:   To deliver on the 2030 agenda, financial decisions need to better align with sustainability priorities. This project explores critical barriers for investment analysis to adopt longer time horizons. Data is collected from buy-side and sell-side financial analysts as well as corporate investor relations officers. Contact: Dr  Hanna Setterberg and Dr  Emma Sjöström

Integrating ESG in the capital market conversation : Contact: Dr. Hanna Setterberg , Dr. Sanne Frandsen , Prof. Mette Morsing

ESG integration as ongoing implementation:  There is a strong concern, in the sustainable investment field, of doing ESG “for real”. This is typically understood as ESG playing a role when and where important decisions are made, and that different types of expertise and calculations are ‘integrated’. The study explores how that concern becomes manifested in the day-to-day work of ESG analysts and portfolio managers, and theorizes what enables and hinders it. Building on interviews and observations in investor organizations, primarily within asset managers, it studies practices of making ESG happen within investment analysis, decision-making and portfolio company dialogue. Contact :   Emilia Cederberg

Sustainable crowdfunding Sustainable entrepreneurs and small start-ups face a myriad of challenges in terms of pursuing their sustainably-oriented ventures not least the locked-in nature of the system which they inhabit and intend to change; as they often go against existing user and industrial practices, regulation, infrastructure and symbolic meanings. These lock-ins consequently also translate into constrained funding opportunities for these "niche innovators", especially in the early "seed funding" stage as they often perceived as a less attractive investment compared to traditional entrepreneurial ventures. The emergence of crowdfunding could, however, signal a shift in financing opportunities for these small sustainable innovators brought on by a shift in prospective financiers of innovation from professional investors to now ordinary citizens (i.e. crowdfunders). Especially since the early literature on crowdfunding has found that rather than focusing on economic gains and feasibilities, the crowdfunders put much more emphasis on the core values and legitimacy of a project. Leading some scholars to suggest that crowdfunders are more likely to invest in sustainable ventures others, however, question this contention instead noting that there is no positive connection between for example environmental orientation and crowdfunding success. The research conducted at respectively CBS and Misum therefore aims at examining what, if any, potential role the "crowd" could have in driving, financing and enabling sustainable entrepreneurship and innovation.

Current Papers: Gallemore, C., Nielsen, K. R., & Jespersen, K. (2019). The uneven geography of crowdfunding success: Spatial capital on Indiegogo. Environment and Planning A: Economy and Space. Retrieved from https://doi.org/10.1177/0308518X19843925

Nielsen, K. R. (2017). Crowdfunding for Sustainability: A Study on the Potential of Reward-based Crowdfunding in Supporting Sustainable Entrepreneurship. Copenhagen Business School [Phd] - PhD Series, No. 35.2017.

Nielsen, K. R. (2018). Crowdfunding through a partial organization lens - The co-dependent organization. European Management Journal, 36(6), 695–707. Retrieved from https://doi.org/10.1016/j.emj.2018.01.006

Testa, S., Nielsen, K. R., Bogers, M., & Cincotti, S. (2019). The role of crowdfunding in moving towards a sustainable society. Technological Forecasting and Social Change, 141, 66–73. Retrieved from https://doi.org/https://doi.org/10.1016/j.techfore.2018.12.011

Contact:  Kristian Roed Nielsen

Finance and Innovation Researching the emergence of low carbon industries. Contact:  Max Jerneck

Microfinance and financial inclusion   Microfinance has become a powerful force in improving the conditions of small and micro enterprises and other vulnerable group across the world. Misum researchers have explored microfinance and its impact on vulnerability, assets, income, training and women empowerment.   Current research includes microfinance and gender.   Contact:   Ranjula Bali Swain

Sustainability reporting and materiality. Materiality assessment constitutes a set of claims and information on ‘what matters’ in corporate sustainable performance. Instead of a unified understanding of what information on corporate performance is material, there are, in fact varying, perhaps conflicting, views that ultimately lead to different constructions of corporate sustainability. We look at materiality more of an opinion rather than a neutral value-free measurement by questioning the taken-for-granted technical-rational understanding of sustainability as something objectively measurable, and the varying sustainability topics as commensurable. This research contributes to the socio-political role of materiality assessment in sustainability reporting literature and discuss the potential of materiality assessment to advance more inclusive accounting and reporting practices, in particular critical dialogic accounting.  

Newest publication:

https://www.emeraldinsight.com/doi/full/10.1108/AAAJ-11-2016-2788

Contact:  Jenni Puroila

Sustainable Investments Contact:  Svetlana Gross

Theory of Sustainable Finance There is currently a growing consensus that the financial system falls short of fulfilling its social purpose. This not only poses a practical challenge for the world’s leaders, but also a theoretical challenge for researchers: to rethink the role of finance in society. According to the dominant theory, rooted in neoclassical economics, financial agents should always adopt the practices which maximize the value of the firm. This project seeks to develop an alternative theory of the social role of finance, which can bolster more responsible and sustainable financial behavior. The project is a collaboration with the   Financial Ethics Research Group   at University of Gothenburg.

Contact:  Joakim Sandberg

Research Topics & Ideas: Finance

120+ Finance Research Topic Ideas To Fast-Track Your Project

If you’re just starting out exploring potential research topics for your finance-related dissertation, thesis or research project, you’ve come to the right place. In this post, we’ll help kickstart your research topic ideation process by providing a hearty list of finance-centric research topics and ideas.

PS – This is just the start…

We know it’s exciting to run through a list of research topics, but please keep in mind that this list is just a starting point . To develop a suitable education-related research topic, you’ll need to identify a clear and convincing research gap , and a viable plan of action to fill that gap.

If this sounds foreign to you, check out our free research topic webinar that explores how to find and refine a high-quality research topic, from scratch. Alternatively, if you’d like hands-on help, consider our 1-on-1 coaching service .

Overview: Finance Research Topics

• Corporate finance topics
• Investment banking topics
• Private equity & VC
• Asset management
• Hedge funds
• Financial planning & advisory
• Quantitative finance
• Treasury management
• Financial technology (FinTech)
• Commercial banking
• International finance

Corporate Finance

These research topic ideas explore a breadth of issues ranging from the examination of capital structure to the exploration of financial strategies in mergers and acquisitions.

• Evaluating the impact of capital structure on firm performance across different industries
• Assessing the effectiveness of financial management practices in emerging markets
• A comparative analysis of the cost of capital and financial structure in multinational corporations across different regulatory environments
• Examining how integrating sustainability and CSR initiatives affect a corporation’s financial performance and brand reputation
• Analysing how rigorous financial analysis informs strategic decisions and contributes to corporate growth
• Examining the relationship between corporate governance structures and financial performance
• A comparative analysis of financing strategies among mergers and acquisitions
• Evaluating the importance of financial transparency and its impact on investor relations and trust
• Investigating the role of financial flexibility in strategic investment decisions during economic downturns
• Investigating how different dividend policies affect shareholder value and the firm’s financial performance

Investment Banking

The list below presents a series of research topics exploring the multifaceted dimensions of investment banking, with a particular focus on its evolution following the 2008 financial crisis.

• Analysing the evolution and impact of regulatory frameworks in investment banking post-2008 financial crisis
• Investigating the challenges and opportunities associated with cross-border M&As facilitated by investment banks.
• Evaluating the role of investment banks in facilitating mergers and acquisitions in emerging markets
• Analysing the transformation brought about by digital technologies in the delivery of investment banking services and its effects on efficiency and client satisfaction.
• Evaluating the role of investment banks in promoting sustainable finance and the integration of Environmental, Social, and Governance (ESG) criteria in investment decisions.
• Assessing the impact of technology on the efficiency and effectiveness of investment banking services
• Examining the effectiveness of investment banks in pricing and marketing IPOs, and the subsequent performance of these IPOs in the stock market.
• A comparative analysis of different risk management strategies employed by investment banks
• Examining the relationship between investment banking fees and corporate performance
• A comparative analysis of competitive strategies employed by leading investment banks and their impact on market share and profitability

Private Equity & Venture Capital (VC)

These research topic ideas are centred on venture capital and private equity investments, with a focus on their impact on technological startups, emerging technologies, and broader economic ecosystems.

• Investigating the determinants of successful venture capital investments in tech startups
• Analysing the trends and outcomes of venture capital funding in emerging technologies such as artificial intelligence, blockchain, or clean energy
• Assessing the performance and return on investment of different exit strategies employed by venture capital firms
• Assessing the impact of private equity investments on the financial performance of SMEs
• Analysing the role of venture capital in fostering innovation and entrepreneurship
• Evaluating the exit strategies of private equity firms: A comparative analysis
• Exploring the ethical considerations in private equity and venture capital financing
• Investigating how private equity ownership influences operational efficiency and overall business performance
• Evaluating the effectiveness of corporate governance structures in companies backed by private equity investments
• Examining how the regulatory environment in different regions affects the operations, investments and performance of private equity and venture capital firms

Asset Management

This list includes a range of research topic ideas focused on asset management, probing into the effectiveness of various strategies, the integration of technology, and the alignment with ethical principles among other key dimensions.

• Analysing the effectiveness of different asset allocation strategies in diverse economic environments
• Analysing the methodologies and effectiveness of performance attribution in asset management firms
• Assessing the impact of environmental, social, and governance (ESG) criteria on fund performance
• Examining the role of robo-advisors in modern asset management
• Evaluating how advancements in technology are reshaping portfolio management strategies within asset management firms
• Evaluating the performance persistence of mutual funds and hedge funds
• Investigating the long-term performance of portfolios managed with ethical or socially responsible investing principles
• Investigating the behavioural biases in individual and institutional investment decisions
• Examining the asset allocation strategies employed by pension funds and their impact on long-term fund performance
• Assessing the operational efficiency of asset management firms and its correlation with fund performance

Hedge Funds

Here we explore research topics related to hedge fund operations and strategies, including their implications on corporate governance, financial market stability, and regulatory compliance among other critical facets.

• Assessing the impact of hedge fund activism on corporate governance and financial performance
• Analysing the effectiveness and implications of market-neutral strategies employed by hedge funds
• Investigating how different fee structures impact the performance and investor attraction to hedge funds
• Evaluating the contribution of hedge funds to financial market liquidity and the implications for market stability
• Analysing the risk-return profile of hedge fund strategies during financial crises
• Evaluating the influence of regulatory changes on hedge fund operations and performance
• Examining the level of transparency and disclosure practices in the hedge fund industry and its impact on investor trust and regulatory compliance
• Assessing the contribution of hedge funds to systemic risk in financial markets, and the effectiveness of regulatory measures in mitigating such risks
• Examining the role of hedge funds in financial market stability
• Investigating the determinants of hedge fund success: A comparative analysis

Financial Planning and Advisory

This list explores various research topic ideas related to financial planning, focusing on the effects of financial literacy, the adoption of digital tools, taxation policies, and the role of financial advisors.

• Evaluating the impact of financial literacy on individual financial planning effectiveness
• Analysing how different taxation policies influence financial planning strategies among individuals and businesses
• Evaluating the effectiveness and user adoption of digital tools in modern financial planning practices
• Investigating the adequacy of long-term financial planning strategies in ensuring retirement security
• Assessing the role of financial education in shaping financial planning behaviour among different demographic groups
• Examining the impact of psychological biases on financial planning and decision-making, and strategies to mitigate these biases
• Assessing the behavioural factors influencing financial planning decisions
• Examining the role of financial advisors in managing retirement savings
• A comparative analysis of traditional versus robo-advisory in financial planning
• Investigating the ethics of financial advisory practices

The following list delves into research topics within the insurance sector, touching on the technological transformations, regulatory shifts, and evolving consumer behaviours among other pivotal aspects.

• Analysing the impact of technology adoption on insurance pricing and risk management
• Analysing the influence of Insurtech innovations on the competitive dynamics and consumer choices in insurance markets
• Investigating the factors affecting consumer behaviour in insurance product selection and the role of digital channels in influencing decisions
• Assessing the effect of regulatory changes on insurance product offerings
• Examining the determinants of insurance penetration in emerging markets
• Evaluating the operational efficiency of claims management processes in insurance companies and its impact on customer satisfaction
• Examining the evolution and effectiveness of risk assessment models used in insurance underwriting and their impact on pricing and coverage
• Evaluating the role of insurance in financial stability and economic development
• Investigating the impact of climate change on insurance models and products
• Exploring the challenges and opportunities in underwriting cyber insurance in the face of evolving cyber threats and regulations

Quantitative Finance

These topic ideas span the development of asset pricing models, evaluation of machine learning algorithms, and the exploration of ethical implications among other pivotal areas.

• Developing and testing new quantitative models for asset pricing
• Analysing the effectiveness and limitations of machine learning algorithms in predicting financial market movements
• Assessing the effectiveness of various risk management techniques in quantitative finance
• Evaluating the advancements in portfolio optimisation techniques and their impact on risk-adjusted returns
• Evaluating the impact of high-frequency trading on market efficiency and stability
• Investigating the influence of algorithmic trading strategies on market efficiency and liquidity
• Examining the risk parity approach in asset allocation and its effectiveness in different market conditions
• Examining the application of machine learning and artificial intelligence in quantitative financial analysis
• Investigating the ethical implications of quantitative financial innovations
• Assessing the profitability and market impact of statistical arbitrage strategies considering different market microstructures

Treasury Management

The following topic ideas explore treasury management, focusing on modernisation through technological advancements, the impact on firm liquidity, and the intertwined relationship with corporate governance among other crucial areas.

• Analysing the impact of treasury management practices on firm liquidity and profitability
• Analysing the role of automation in enhancing operational efficiency and strategic decision-making in treasury management
• Evaluating the effectiveness of various cash management strategies in multinational corporations
• Investigating the potential of blockchain technology in streamlining treasury operations and enhancing transparency
• Examining the role of treasury management in mitigating financial risks
• Evaluating the accuracy and effectiveness of various cash flow forecasting techniques employed in treasury management
• Assessing the impact of technological advancements on treasury management operations
• Examining the effectiveness of different foreign exchange risk management strategies employed by treasury managers in multinational corporations
• Assessing the impact of regulatory compliance requirements on the operational and strategic aspects of treasury management
• Investigating the relationship between treasury management and corporate governance

Financial Technology (FinTech)

The following research topic ideas explore the transformative potential of blockchain, the rise of open banking, and the burgeoning landscape of peer-to-peer lending among other focal areas.

• Evaluating the impact of blockchain technology on financial services
• Investigating the implications of open banking on consumer data privacy and financial services competition
• Assessing the role of FinTech in financial inclusion in emerging markets
• Analysing the role of peer-to-peer lending platforms in promoting financial inclusion and their impact on traditional banking systems
• Examining the cybersecurity challenges faced by FinTech firms and the regulatory measures to ensure data protection and financial stability
• Examining the regulatory challenges and opportunities in the FinTech ecosystem
• Assessing the impact of artificial intelligence on the delivery of financial services, customer experience, and operational efficiency within FinTech firms
• Analysing the adoption and impact of cryptocurrencies on traditional financial systems
• Investigating the determinants of success for FinTech startups

Commercial Banking

These topic ideas span commercial banking, encompassing digital transformation, support for small and medium-sized enterprises (SMEs), and the evolving regulatory and competitive landscape among other key themes.

• Assessing the impact of digital transformation on commercial banking services and competitiveness
• Analysing the impact of digital transformation on customer experience and operational efficiency in commercial banking
• Evaluating the role of commercial banks in supporting small and medium-sized enterprises (SMEs)
• Investigating the effectiveness of credit risk management practices and their impact on bank profitability and financial stability
• Examining the relationship between commercial banking practices and financial stability
• Evaluating the implications of open banking frameworks on the competitive landscape and service innovation in commercial banking
• Assessing how regulatory changes affect lending practices and risk appetite of commercial banks
• Examining how commercial banks are adapting their strategies in response to competition from FinTech firms and changing consumer preferences
• Analysing the impact of regulatory compliance on commercial banking operations
• Investigating the determinants of customer satisfaction and loyalty in commercial banking

International Finance

The folowing research topic ideas are centred around international finance and global economic dynamics, delving into aspects like exchange rate fluctuations, international financial regulations, and the role of international financial institutions among other pivotal areas.

• Analysing the determinants of exchange rate fluctuations and their impact on international trade
• Analysing the influence of global trade agreements on international financial flows and foreign direct investments
• Evaluating the effectiveness of international portfolio diversification strategies in mitigating risks and enhancing returns
• Evaluating the role of international financial institutions in global financial stability
• Investigating the role and implications of offshore financial centres on international financial stability and regulatory harmonisation
• Examining the impact of global financial crises on emerging market economies
• Examining the challenges and regulatory frameworks associated with cross-border banking operations
• Assessing the effectiveness of international financial regulations
• Investigating the challenges and opportunities of cross-border mergers and acquisitions

Choosing A Research Topic

These finance-related research topic ideas are starting points to guide your thinking. They are intentionally very broad and open-ended. By engaging with the currently literature in your field of interest, you’ll be able to narrow down your focus to a specific research gap .

When choosing a topic , you’ll need to take into account its originality, relevance, feasibility, and the resources you have at your disposal. Make sure to align your interest and expertise in the subject with your university program’s specific requirements. Always consult your academic advisor to ensure that your chosen topic not only meets the academic criteria but also provides a valuable contribution to the field. 

If you need a helping hand, feel free to check out our private coaching service here.

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Doctor in Philosophy (DPhil/PhD) in Sustainable Finance topics

Course overview

Each year the Oxford Sustainable Finance Programme supervises or co-supervises Doctor of Philosophy (DPhil/PhD) students on sustainable finance topics.

Students apply to the DPhil in Geography and the Environment at the University of Oxford. The DPhil is the University of Oxford’s premier research degree, awarded to candidates who have successfully completed a major piece of original research. The course provides support and an intellectual environment to pursue your own independent research.

Course structure and content

The DPhil is offered as either a full-time three- to four-year degree, or a part-time six- to eight-year degree. Currently the expected contact time for the part-time arrangement is thirty days at Oxford per year; the majority of this will take place across the three eight-week terms and will include supervision meetings and core research training.

Teaching and assessment

The DPhil is an advanced research degree which is awarded on the basis of a thesis and oral examination (assessment of other work is not taken into consideration). The thesis should represent a significant and substantial piece of research which is conveyed in a lucid and scholarly manner which shows that you have a good general knowledge of the field of your thesis. You are required to work independently, to take the initiative in exploring a line of research and to acquire new skills in order to carry out your research. You will be allocated a supervisor who will meet with you at specifically agreed times and will agree with you a research plan and programme of work and to establish clear academic expectations and milestones.

Entry requirements, fees and application

Degree-level qualifications

As a minimum, applicants should hold or be predicted to achieve the equivalent of the following UK qualifications:

• a master’s degree with distinction (or a distinction grade on the dissertation, as a minimum) in geography or a related environmental field,  and
• a first-class or strong upper second-class undergraduate degree with honours in any discipline.

For applicants with a degree from the USA, the minimum GPA sought is 3.7 out of 4.0.

You are encouraged to look at the department lists of  potential supervisors and topics  before writing your research proposal and to approach specific supervisors directly to discuss your research proposal before applying.

Career opportunities

Many graduates are commanding influential positions in multinational corporations, in national, state and international government, in non-governmental organisations, and by continuing with further research.

For course related inquiries please contact:

• [email protected]

Course Features

• Host Institution University of Oxford
• Department / Institute School of Geography and the Environment
• Course Name Doctor in Philosophy (DPhil/PhD) in Sustainable Finance topics
• Course Type Degree program
• Course Mode Full time or part time
• Location Oxford
• Course Language English
• Course Level Doctoral
• Duration 3 years
• For information on course fees please see university website.

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Videos - 21.05.2024 - 15:12 

HSG Impact Awards 2024: Rules of the game for hybrid forms of work

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The coronavirus pandemic has accelerated this development towards flexibilisation of work location and time. Even though many companies are calling for a return to the office after the end of the pandemic, it is becoming increasingly clear that the future of office work will be hybrid - i.e. partly in the office and partly remote.

Initiated by the Center for Disability and Integration at the University of St.Gallen and Audi AG, the project by Prof. Dr. Stephan Böhm, Tarek Carls, and Dr. Martina Hartner-Tiefenthaler (TU Vienna) has identified ways in which hybrid teams can organise their collaboration in order to increase both efficiency and health. About the HSG Impact Awards About the HSG Impact Awards Every year, the University of St.Gallen (HSG) honours outstanding research with the HSG Impact Award. HSG researchers who make a particularly valuable contribution to society with their projects are honoured.

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• Medical Devices

Healthcare & Pharma Outlook 2024: Companies to focus on quality, sustainability, and accessibility; Surge in R&D expected

Global alliances and collaborations will also be highlighted in 2024, creating an innovation-friendly environment..

From medical and MedTech advancements, new obesity treatments to telehealth and virtual treatment expansion, 2023 witnessed rising investments in healthcare technology, specifically in the areas of healthcare financing, personalised healthcare, clinical decision support and AI-assisted medical imaging.

According to the Boston Consulting Group (BCG) and B Capital report, the digital transformation of India ’s healthcare industry has the potential to accelerate tenfold, from $2.7 billion in 2022 to approximately $37 billion by 2030.

In the pharmaceutical industry, many domestic-focused companies are anticipated to achieve mid-teen growth in 2024. Reportedly, this momentum will be driven by the focus on new product launches, increased volume growth, and growing demand for generics and branded products, the report revealed.

‘A surge in research and development is expected’

Interestingly, the prospects of the medical devices industry in India also appear promising in 2024 as the sector continues to undergo significant advancements and growth. Industry leaders claim that the expected implementation of the favourable National Medical Devices Policy 2023.

“Looking back at 2023, it will be seen as an important year for the MedTech industry, which has witnessed impressive growth and innovation. The year was marked by groundbreaking technological advancements, strategic collaborations, and governmental initiatives aimed at elevating our healthcare infrastructure and accessibility focusing on improving healthcare infrastructure and accessibility,” Hariharan Subramanian, Managing Director, Siemens Healthcare Private Limited told Financial Express.com.

The Indian government’s implementation of the National Medical Device Policy (NMDP) in 2023 has paved a progressive path for the MedTech sector, unlocking an array of prospects for growth and innovation, thereby fortifying the healthcare landscape, Subramanian said.

“The NMDP’s objective of streamlining regulations, incentivizing domestic manufacturing, and encouraging R&D in India aligns with the national vision of achieving ‘Atmanirbhar’ status in developing innovative and accessible medical devices. In 2023, we continued expanding our manufacturing footprints in India under the government’s PLI scheme, reaffirming our strong belief in India’s growth story. As we welcome 2024, heightened expectations envelop the MedTech sector in India,” he told Financial Express.com.

A surge in research and development is expected, ushering in advancements in artificial intelligence , precision medicine, and diagnostics, all of which will contribute to personalized and efficient healthcare solutions, revolutionizing patient care, he claimed.

Moreover, companies are poised to leverage policies and initiatives such as NMDP and PLI to improve access to care in the remotest corners of India, addressing the needs of the most underserved populations cost-effectively.

According to Subramanian, global alliances and collaborations will also be highlighted in 2024, creating an innovation-friendly environment. Cross-industry collaboration will not only address the current healthcare concerns but will also proactively tackle emerging issues, thereby improving patient outcomes and global healthcare accessibility.

“The impending rise of robotics and AI intervention in healthcare, exemplified by patient twinning, precision therapy, and digital health technology, highlights the upcoming MedTech revolution. This progression is consistent with Siemens Healthineers commitment to fighting against prevalent diseases such as cancer, cardiovascular, and neurovascular diseases by pioneering breakthroughs in healthcare for everyone, everywhere, sustainably, he emphasised.

In summary, the strides made in 2023 will pave the way for a compelling and hopeful 2024 in the MedTech sector, he claimed.

“With a focus on innovation, collaboration, and a dedication to advancing healthcare, we anticipate a year of breakthroughs and significant contributions to the well-being of communities worldwide,” he said.

‘Focus remains on quality medications, sustainability, and accessibility’

An enhanced performance in the US generics markets, robust performance in branded markets, and market share gains from recently launched products have improved the performance of the companies in 2023.

“As we approach the new year, the pharmaceutical industry in India continues to play a pivotal role in advancing global health . The year 2023 witnessed substantial progress in research, development, and the delivery of innovative healthcare solutions. Confronted by challenges, our industry demonstrated remarkable resilience and adaptability, reinforcing our unwavering commitment to enhancing the well-being of individuals on a global scale,” Dr. Vikas Gupta, CEO – Alkem Laboratories told Financial Express.com.

The ongoing global health landscape has reinforced the indispensable role of pharmaceutical companies in propelling advancements that not only respond to current health crises but also proactively anticipate future challenges. Looking ahead to 2024, our focus remains on quality medications, sustainability, and accessibility, Dr Gupta pointed out.

Furthermore, sustainability has emerged as a paramount focus within the industry. Acknowledging the environmental impact of pharmaceutical production, companies are actively pursuing eco-friendly alternatives and sustainable practices. This commitment to environmental responsibility is anticipated to instigate transformative changes in manufacturing and supply chain processes, he added.

“In the forthcoming year, we anticipate a heightened emphasis on cultivating diverse talent pools, particularly in research and leadership roles. Embracing a spectrum of perspectives is not only a moral imperative but also a strategic advantage and enabling us to better address the healthcare needs of diverse populations. Our dedication to patient-centricity remains resolute. Navigating the complexities of healthcare, we pledge to positively impact the lives of patients through collaborations, both domestically and internationally, in advancing our shared objectives for global health improvement,” Dr. Gupta said.

He also said that the pharmaceutical industry remains steadfast in its mission to elevate global health standards.

“Through the strategic utilization of technology, commitment to sustainability, and active promotion of diversity, we are poised to meet the evolving healthcare landscape with resilience, innovative solutions, and an enduring commitment to the well-being of individuals worldwide,” he added.

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