Financial and institutional pathways through which green finance and sustainable investment support the transition toward low-carbon economies

This paper examines the relationship between green finance, sustainable investment and the transition toward low-carbon economies by reviewing the main theoretical and empirical contributions developed in recent literature. The analysis focuses on three complementary dimensions: the institutional and financial foundations of green finance, the integration of sustainability and climate risk into investment and asset-pricing decisions, and the capacity of sustainable finance to generate measurable changes in production, technological adoption and economic decarbonization. The reviewed studies show that green bonds, green loans, ESG-oriented investment and climate-related financial policies can influence capital allocation, but their effectiveness depends strongly on credible certification, transparent information, appropriate risk-sharing mechanisms and supportive institutional frameworks. The literature also indicates that carbon exposure and climate risk are progressively incorporated into asset prices and portfolio decisions, while investor preferences increasingly affect demand for environmentally responsible securities. Beyond financial markets, the evidence suggests that green finance can support renewable-energy deployment, green technological investment, sustainable supply-chain practices and improvements in green total factor productivity. The overall conclusion is that sustainable finance contributes most effectively to low-carbon transition when financial development is translated into concrete technological, organizational and productive changes capable of reducing the environmental intensity of economic activity.