Green Finance and Sustainable Development: A Systematic Review of Mechanisms, Outcomes, and Policy Gaps

Abstract

Green finance has emerged as a central policy and market mechanism for redirecting capital toward low-carbon, resource-efficient, and socially inclusive development pathways, yet evidence on which mechanisms actually translate into measurable sustainability outcomes remains fragmented. This study systematically examines the relationships among policy and regulatory support, disclosure and transparency infrastructure, the availability of green financial instruments, institutional capacity, and perceived risk barriers in shaping green finance adoption, and in turn, perceived progress toward Sustainable Development Goal (SDG)-aligned outcomes. A cross-sectional survey was administered to a global sample of 410 respondents drawn from commercial banks, institutional investors, non-financial corporates, and green/climate funds or fintech firms across five global regions. Validated multi-item Likert scales were used to measure all constructs, and data were analyzed using descriptive statistics, Pearson correlation, hierarchical ordinary least squares (OLS) regression, mediation analysis, and one-way analysis of variance (ANOVA). All measurement scales demonstrated acceptable to good internal consistency (Cronbach's alpha ranging from 0.831 to 0.891). The regression model explained approximately 49.8% of the variance in green finance adoption (R² = 0.498, F(5, 404) = 80.20, p < 0.001), with the availability of green financial instruments (β = 0.320, p < 0.001) and policy and regulatory support (β = 0.312, p < 0.001) emerging as the strongest positive predictors, while perceived risk and informational barriers exerted a significant negative effect (β = -0.155, p < 0.001). Green finance adoption, in turn, significantly predicted SDG-aligned performance outcomes (β = 0.412, p < 0.001), accounting for 35.3% of outcome variance. Mediation analysis confirmed that green finance adoption substantially mediated the relationship between policy support and sustainability outcomes, accounting for approximately 70.9% of the total effect (Sobel z = 8.26, p < 0.001). No statistically significant differences in adoption were found across firm types (F = 2.16, p = 0.092) or world regions (F = 0.86, p = 0.486), suggesting that the structural drivers of green finance adoption operate with notable consistency across institutional and geographic contexts, even as absolute levels of adoption remain moderate worldwide (M = 2.99, SD = 0.87, on a 5-point scale). These findings indicate that green finance functions as a critical transmission mechanism linking enabling policy environments to tangible sustainability performance, but that persistent gaps in instrument availability, disclosure infrastructure, and risk-related uncertainty continue to constrain its full potential. The study concludes with a discussion of policy gaps and offers targeted recommendations for regulators, financial institutions, and standard setting bodies seeking to scale green finance as a credible instrument of sustainable development.