Advancing green finance: a review of climate change and decarbonization

Abstract

This paper comprehensively reviews the interconnections between climate change, decarbonization, and green finance. The urgency of addressing climate change and its catastrophic consequences needs to focus on green finance as a vital tool in the global struggle against environmental damage. Green finance involves supplying investments, loans, or capital to support environmentally friendly activities, facilitating the transition to a more sustainable future. This review explores the theoretical frame of reference for green finance, including its impacts on climate change, decarbonization of economies, carbon-stranded assets, risk management, renewable energy, and sustainable economic growth. Additionally, it examines regional focuses in Asia, such as the importance of green finance in China and the beliefs and challenges of green finance in Bangladesh. The review also discusses future directions and recommendations for advancing green finance. The review examines the current research in green finance and how it can address environmental challenges and promote sustainable development. More research needs to be conducted in mainstream economics and finance journals to bridge the knowledge gap and foster broader scholarly engagement in green finance. Researchers, policymakers, investors, and stakeholders will receive help from the study's reliable and robust insights into combating climate change and promoting sustainable development.

1 Introduction

Green finance has become vital in the worldwide struggle against climate change and environmental damage. The catastrophic implications of the changing climate for the globe and its inhabitants require prompt action. A million or more species might become extinct due to the stunning acceleration of biodiversity loss. Countless households and their livelihoods are also in danger of rising sea levels. Given the urgency of the situation, it is imperative to focus both research and attention on green finance to harness its full potential. In the context of our imperative for sustainable development, the profound insights from studies such as (Lu et al. 2023) exploration of automation's impact on CO2 emissions in China strike a resonant chord. Their focus on emission reduction through innovation aligns with our overarching exploration of international investments and sustainability. Green finance involves supplying investments, loans, or capital to support environmentally friendly activities. The green finance approach eases progress toward a more ecologically sustainable future by financing eco-friendly projects and enabling a transition away from fossil fuels. Investment in clean and renewable technologies, financing sustainable natural resource-based sustainable economies, and climate-smart blue economies are part of this process. Green finance can be crucial in achieving carbon neutrality and promoting sustainable economic growth (Fu et al. 2023). Green Finance can support economic growth by investing in renewable industries and technologies while promoting environmental sustainability and social equity. The blue economy illustrates how green financing may promote long-term economic development while safeguarding ocean health. Green finance may help the economy grow while protecting ecological integrity by funding ocean-based sectors, including fisheries, aquaculture, marine biotechnology, and renewable energy.

Green finance has been the subject of extensive research, examining various aspects related to the role of greenhouse gas emissions, environmental disclosures, climatic disaster risk, economic consequences of global warming, temperature shifts, the relationship between temperature and aggregate risk, the influence of climate policy risk on the financial system, managing investment risk in the transition to a lower-carbon economy, quantification of investment risks and policy uncertainty, and the macroeconomic consequences of climate change and private debt dynamics.

In November 2021, international leaders gathered in Glasgow for the United Nations Climate Change Conference (UNFCCC) to discuss green finance, one of the five critical issues on the agenda. Green finance, or climate finance, involves acquiring and using funds to support environmentally friendly projects while supplying a reasonable return for lenders or investors (Berensman and Lindenberg 2019). It aims to redirect financial resources towards ecologically conscious businesses to achieve sustainable development goals (Liang and Renneboog 2020).

Divestment from fossil fuel operations and investment in low-carbon projects and activities that sustainably protect the environment have been urged to lessen environmental harm caused by fossil fuel emissions (Milano et al. 2016). Internal and international repercussions arise from this divestiture call. According to Van der Ploeg and Withagen (2015), several governments, including Canada, Japan, Mexico, and the United Kingdom, have made statements to increase public understanding of the dangers of climate change and the harmful effects of fossil fuel emissions on the ecosystem (Dimitrov 2016).

As the green economy grows, creative financing is necessary to address environmental concerns (Dikau and Volz 2021; Lamperti et al. 2021; Sachs et al. 2019a). Proponents of a green economy have suggested green finance as a practical way of addressing the funding needs of businesses, individuals, and governments involved in environmental preservation (Berry and Rondinelli 1998; Soundarrajan and Vivek 2016).

Consequently, green finance, an alternative means of financing green or low-carbon operations, has gained significant attention recently (Huang 2022). This type of financing offers several benefits, including the distribution of funds for environmental protection, the flow of funds towards sustainable trade and investment (Wang and Zhi 2016), the creation of green investment and financing instruments (Eyraud et al. 2013), and low-risk financing (Taghizadeh-Hesary and Yoshino 2019). However, green finance is just one form of sustainable development financing. Other research directions include blue finance, digital finance, and social finance (Cao et al. 2021).

Nevertheless, there is a need for more research into green finance because academics and researchers should be interested. However, more research is needed since there is a lack of enthusiasm among scholars and researchers. The participation of private actors in the field (Taghizadeh-Hesary and Yoshino 2019), efforts to fill funding gaps for eco-friendly initiatives (Hafner et al. 2020; Dörry and Schulz 2018; Sachs et al. 2019a), and the role of central banks in promoting green finance (Volz 2017) are just a few recent research papers that have addressed this knowledge gap.

Despite their reduced risk and increased returns, many investors need to know the advantages of green investments. Another obstacle to such investments is the limited availability of green finance projects (Ameli et al. 2020). The prohibitive cost and complexity of developing and implementing projects and the shortage of experienced green finance project developers contribute to this low supply (Zhang et al. 2022b).

Notably, green bonds have achieved a record high in issuances, enabling financing for projects that contribute to achieving sustainable development goals such as renewable energy, energy efficiency, sustainable transport, and clean water and sanitation (Manulife Investment Management 2023). Tax incentives for renewable energy have increased wind and solar power deployment, reduced greenhouse gas emissions, and created jobs (IEA 2022). The European Union has published Sustainable Finance Guidelines, which aim to align financial flows with decarbonization investment decision-making, resulting in increased investment in green projects and reduced financing for environmentally harmful activities (European Commission 2021). Green banks have also been set up in many countries, supporting clean and green technologies (Coalition for Green Capital 2021).

Interest in how finance may advance sustainable development has increased as the globe struggles to deal with climate change consequences and the urgent need for decarbonization. Green finance has become a vital tool in this endeavor; that term describes financial instruments and investments created to help environmentally friendly initiatives and enterprises. This study examines green finance today with an eye on how it may contribute to decarbonization and climate change mitigation. We want to shed light on the problems and possibilities ahead and contribute to a better understanding of finance's role in directing capital to green financial markets toward decarbonization by exploring the latest trends, research, and advancements in this quickly expanding industry.

Following is the review's organization to advance green finance, focusing on climate change and decarbonization. Section 2 explains the research methodology, detailing the approaches used to identify influential themes and systematically analyze relevant articles. Decarbonization, green finance, and climate change are discussed in Sect. 3. Topics discussed include the relationship between green finance and climate change, the impact of green finance on decarbonization, and the role of green finance in low-carbon agriculture. Furthermore, it discusses climate change and risk management, green finance in Asia, and investor behavior. Section 4 explores research avenues for promoting advanced green finance with a focus on climate change and decarbonization, offering recommendations and suggesting avenues for exploration. Finally, Sect. 5 concludes the research by summarizing the main findings and emphasizing the significance of green finance in combating climate change and promoting sustainable development. The review highlights the need for further study in mainstream economics and finance journals to foster broader engagement and contribute to green finance advancement.

2 Research methodology

The study conducted for this review employed two distinct approaches to selecting green finance articles. The first approach focuses on identifying themes directly or indirectly related to green finance that are considered essential and influential. The second approach involves a systematic analysis of all papers published in the Scopus database, using the keywords “green finance,” “climate change,” and “decarbonizing” to identify relevant articles as the primary keywords. Also, “Green finance” refers to financial products and services promoting environmentally sustainable outcomes; this includes reducing greenhouse gas emissions or encouraging renewable energy sources (Wang and Ma 2022; Khan et al. 2022; IEA 2017). The keyword “Green Finance” helps ensure that articles focus on this study area. “Climate change” describes the long-term shifts in temperature, precipitation, wind patterns, and other climatic indicators over many decades (NASA). This crucial problem is closely related to the idea of green financing. It is a critical factor in this field of study’s expansion. The search results that explore the connection between climate change and green finance use the phrase “climate change.” “Decarbonizing” refers to reducing the amount of carbon dioxide in the atmosphere and the global economy (Fecht 2021; Li et al. 2022); this is a critical aspect of mitigating climate change’s impacts and is intricately linked to green finance development. Articles discussing green finance’s role in promoting a low-carbon economy and reducing greenhouse gas emissions are identified by including this word in the search.

We also considered terms and keywords with similar meanings to cast a broader net, such as “sustainable investing.” Sustainable investing is an investment procedure that considers financial objectives and environmental, social, and governance (ESG) criteria (Pástor et al. 2021), and “responsible investing” is an investment procedure that involves environmental, social, and governance (ESG) factors in portfolio choice and equilibrium asset pricing (Pedersen et al. 2021). As illustrated in Table 1, our search strategy aimed to encompass various terms closely related to the research’s title.

Table 1 This table outlines the search process and the corresponding keywords and filters used to retrieve relevant articles on green finance, climate change, and related topics. The "Search" operator indicates the primary keyword, while the "AND" and "OR" operators refine the search by combining keywords. The table also includes a "Limit to" filter specifying the article type as "Economics" or "Business"

This method allowed us to identify relevant studies and ensure the review’s rigor, reliability, and relevance to the research topic. In total, over 130 articles were included in this study. Both approaches enabled a comprehensive analysis of the green finance literature; thus, they can contribute to the field.

We aim to analyze keywords and identify the primary research areas that garner the most attention. Due to the extensive number of keywords obtained (906 in total), we have chosen to focus on the top 50 keywords with the highest frequency of occurrence. This selective approach allows for a more concise and informative presentation of the primary research areas (509 keywords). Table 2 illustrates the main focal points identified by meticulously analyzing the articles' keywords.

Table 2 This table provides a ranking of keywords along with their frequencies. The keywords are related to diverse topics, such as "Green finance," "Climate change," "CO2 emission," and others. The frequency column indicates how often each keyword appears in the dataset or literature

We present a Tree Map Analysis Fig. 1 below to enhance audience comprehension, highlighting the top 50 keywords with the highest frequencies. This visual representation effectively illustrates the paper's most frequently used keywords and their frequencies.

Fig. 1

Tree Map Analysis of the top 50 keywords with the highest frequency

However, due to space limitations within the table, we could not include all keywords in a statistical format. Nevertheless, we recognized the significance of displaying the words used in our research. Therefore, we have complemented all keywords in Word Cloud Fig. 2. This visual aid offers a comprehensive perspective on the subjects explored within the literature and promotes a deeper understanding of our target audience.

Fig. 2

Word Cloud Analysis of Initial Keywords

Table 2 reveals that the leading keyword, “Green Finance,” has 63 occurrences, indicating the topic’s prominence in the literature. Climate change follows closely with 59 instances, highlighting the strong connection between green finance and climate-related research.

The list also includes “CO2 emission” (32 occurrences), emphasizing the importance of addressing carbon emissions in green finance. “Sustainable development” (23 occurrences) and “carbon dioxide” (19 occurrences) are other noteworthy keywords that signify the multidisciplinary nature of green finance, encompassing sustainability and environmental concerns.

This analysis of keyword data serves as a valuable resource for researchers, policymakers, investors, and businesses. It provides insights into the primary areas of interest and guides future research directions. Additionally, policymakers and investors can use this information to align their strategies with current research trends, promoting sustainable development and environmentally friendly initiatives. This data can help businesses identify potential green finance opportunities, foster innovation, and contribute to sustainable economic growth.”

We have classified them to enhance comprehension and elucidate the association between keywords and thematic relevance. Furthermore, we have ascertained the alignment of keywords with specific categories. This comprehensive analysis revealed that, in total, 906 words were distributed. We have identified 361 unique keywords associated with the category by eliminating repetitions, providing a more nuanced understanding of the underlying subject matter.

This systematic approach enhances our ability to decipher the relationships between keywords and their respective thematic areas, contributing to a more comprehensive understanding of the broader context of this study.

To improve our audience’s understanding, we have included two figures, Figs. 3 and 4, which visually organize keywords into distinct categories. These figures offer valuable insights into the prevalent and interconnected themes within the field by presenting the keywords under their respective category headings.

Fig. 3

Word Cloud Analysis of Initial Keyword Groupings

Fig. 4

Groupings Tree Map Analysis of Initial Keyword Groupings

Table 3 complements the categorical representation illustrated in Fig. 2 by providing the corresponding statistical data. It efficiently organizes keywords into 32 distinct categories within the broader category. Notably, this comprehensive analysis encompasses 361 unique keywords, emphasizing the depth of coverage. For example, within the “Economic and Financial Factors” title, there are 64 unique keywords (excluding repetitions) and a total of 111 keywords (including repeats).

Table 3 The table summarizes how often headings and keywords are repeated in various categories. The "Category" column lists different topics, while the following two columns show each category's heading frequency and keyword repetition

Furthermore, for enhanced clarity in presenting the keywords and their respective categories, we have employed Fig. 5, a network analysis illustrating the connections between keywords and their classifications. This visual representation highlights the intricate relationships between keywords and their associated categories.

Fig. 5

A network analysis of the keywords and the category

Based on our keyword grouping analysis, we recommend that researchers, policymakers, and businesses direct their attention to the following subjects:

Researchers play a crucial part in advancing the field of green finance. To contribute effectively, they should examine the positive economic outcomes of sustainable investments while also considering the potential risks associated with climate change through the lens of economic and financial factors in green finance. This examination should be grounded in economic and financial factors specific to green finance.

Another crucial area of focus for researchers involves investigating various energy categories, strongly emphasizing renewable and clean energy sources. Researchers should determine these energy options' economic feasibility and environmental friendliness, providing valuable insights for investors and policymakers.

Researchers should employ advanced analytical methods and statistical models to validate sustainable financial strategies' viability. These tools can help assess the financial performance of green investments and their impact on reducing carbon emissions. Moreover, fostering creativity is essential. Researchers should develop innovative ideas and investment models that align with environmental sustainability goals for sustainable investments. Additionally, they should explore ways financial instruments can better support sustainable projects by bridging gaps in green finance.

Policymakers have the responsibility of shaping the regulatory landscape to promote green finance. Their actions should include creating green finance policies and encouraging investments in environmentally friendly projects. These policies should be complemented by rules and incentives that incentivize green finance initiatives within the financial sector.

Understanding how geopolitical factors can impact green initiatives within any discourse region is crucial. Policymakers should tailor green finance policies to address the unique needs and challenges specific to their geographical area. Prioritizing the regulation of carbon emissions is also essential. Policymakers should develop and enforce policies to reduce emissions, exploring market-based strategies that encourage businesses to reduce their carbon footprint.

Policymakers should invest in tools and frameworks for assessing and mitigating risks to ensure financial systems are resilient to environmental challenges, particularly climate change-associated ones. Additionally, they should actively promote the development and adoption of sustainable technologies through regulatory frameworks and financial incentives.

Businesses play a critical role in driving sustainability through their operations and investments. They should make sustainability an integral part of daily operations, which includes reducing energy consumption, minimizing carbon emissions, and adopting eco-friendly technologies wherever possible.

Furthermore, businesses should evaluate investment opportunities by considering projects and technologies aligned with green finance principles. Thorough assessments of potential returns should be conducted, ensuring they align with long-term sustainability goals. Developing environmentally friendly products and services within every industry is another crucial step. Businesses should explore opportunities to effectively market these products and services, meeting the growing demand for sustainability.

Expanding the reach of sustainable initiatives by entering global markets is an effective strategy. This expansion entails aligning every business with international sustainability goals and addressing global sustainability needs. Continuous operational efficiency improvement is also vital; it reduces environmental footprints and saves money through reduced resource consumption.

3 Research themes of reference

3.1 Green finance and its impacts

In this subsection, the reviewed articles emphasize the importance of green finance in addressing climate change and promoting sustainability. The authors highlight the benefits of green financing, such as investing in renewable energy and technological innovation for reducing emissions. They delve into various aspects, from distinguishing green and climate finance to examining the role of green financial instruments and their impact on different sectors. These studies collectively contribute valuable insights into the evolving landscape of green finance and its pivotal role in addressing environmental challenges.

3.1.1 Climate change

Green finance and climate finance are closely related but distinct concepts. The International Finance Corporation (Krushelnytska 2017) represents green finance as financing investments that supply environmental benefits. In distinction, the United Nations Framework Convention on Climate Change defines climate finance as financing supporting mitigation and transformation actions to manage climate change, sourced from public, private, and alternative sources. Despite these slight differences in definition, both concepts center on using finance to address climate change and promote sustainability.

In emerging and growing economies, green finance and investment risk are intricately linked, as Nawaz et al. (2021) noted. In their study, which covers the period 2005 to 2019, the authors evaluated the determinants of the scaling up of green financing and climate change mitigation in the N-11¹ countries using a difference in differences (DID) approach.

According to the study, outcome covariates such as renewable energy source consumption, population, foreign direct investment (FDI), greenhouse gas emissions, inflation, grants provided by technical corporations, domestic credit to the private sector, and research and development played a significant role in advancing green financing and climate change relief in the study countries.

In recognition of their significant contributions to global warming and CO2 emissions, the N-11 countries have launched initiatives to transition to low-carbon economies due to their high energy intensity ratios. The N-11 countries have, therefore, established programs like Indonesia's Low-Carbon Development Initiative to help them transition to a low-carbon economy.

However, the probit regression results provide a different outcome, showing that, for this reason, FDI, CO2, the Human Development Index, and investment in the energy sector by the private sector will impact green financing and climate change mitigation. The study also finds mixed results for both the treated and untreated countries, with some experiencing an improvement in funding green and climate change mitigation efforts and others experiencing a decrease. Overall, the DID showed no significant differences among the countries. The text also suggests that FDI may increase CO2 emissions in emerging countries and that countries with good Human Development indicators will attract green financing.

Green finance has gained significant attention in recent studies on the global fight against climate change. However, more consensus among scholars on a clear definition of the term is required.

3.1.2 Decarbonization of economies

In their Research, Zhang et al. (2022c). present a study that analyzes the impact of green and digital finance on environmental protection using data from G-20 economies between 2008 and 2018. The study, which relies on a quantile regression model, reveals that investments in green finance, renewable energy, and technical innovation help reduce CO2 emissions. Emissions are also boosted through commerce, foreign direct investment, energy use, and economic expansion. The research also makes policy suggestions for advancing digital finance, enhancing green finance, and developing a market for carbon trading for sustainable development.

One of its strong points is this article’s use of data from the G-20 economies and a quantile regression model to examine the link between green financing and environmental protection. The report also makes policy recommendations that can assist decision-makers in creating more successful plans to support sustainable development and green financing. However, the study could have been more comprehensive by considering specific aspects. One drawback of the study is its narrow emphasis on the connection between green finance and environmental protection exclusively within G-20 economies, which restricts the applicability of the findings to other nations or regions. Additionally, the study neglects to examine variables that may influence this relationship, such as energy policy and government regulations.

3.1.3 Carbon-stranded assets

The research paper by Chevallier et al. (2021) examines the potential financial risks for oil, gas, and coal companies due to stranded assets. Stranded assets refer to known fossil fuel reserves that cannot be used if limiting greenhouse gas emissions becomes more stringent. The paper simulates the impacts of carbon-stranded assets on the value of 17 significant oil, gas, and coal firms until 2050. A stochastic model at the paper’s core determines which companies are left with stranded assets based on initial conditions. The simulations show that the concept of carbon-stranded assets leads to a redefinition of risk for oil, gas, and coal companies and highlights the need to restructure their business models. With such changes, many companies would be protected from the financial risks of bankruptcies and default events. The study also demonstrates that an environmental gain of 80% can be achieved with stringent emission-curbing policies.

The paper concludes that investors’ expectations are noticeably clear from that stance, as various pension funds are divesting their holdings of polluting stocks. The findings, however, may only partially represent part of the industry as it is based on a computer model. Additionally, it ignores workable solutions to the issue of stranded assets and the broader social and environmental problems connected to them.

3.1.4 Investment in renewable energy

In their study, Lin et al. (2022) argue that investing in green finance and renewable energy sources will significantly address climate change. Their analysis focuses on geopolitical risk, inflationary pressures, and green financing in China, using micro- and macro-level data from 2010 to 2021. The authors employ regression estimation techniques to investigate direct and indirect relationships between various parameters. They find that environmental tariffs, such as carbon emissions tariffs, positively impact renewable energy sources' profitability. At the same time, geopolitical risk and volatility in oil prices negatively affect China's investment behavior in sustainable energy sources.

In addition, the study emphasizes the importance of green regulations for reducing green financing's adverse effects. The authors recommend that green businesses in China prioritize investments in renewable energy based on these findings. Green finance and renewable energy sources have the potential to address climate change, particularly in China, according to the study. Analysis of complex economic and environmental data requires rigorous statistical techniques.

3.1.5 Innovation and green finance

Irfan et al. (2022) observe that green financing promotes sustainable economic transformation, generates green innovation, and tackles climate change. Their empirical study focuses on the influence mechanism and policy intervention effects of inclusive green funding on green innovation in China using regional data from 2010 to 2019. The study employs various models, including difference-in-differences, mediation effects, and panel vector autoregression, to examine the relationship between green financing and green innovation. The study’s findings reveal three main conclusions. Firstly, green funding significantly influences green innovation at the regional level, and this finding is robust to alternative estimators and proxy variables for the explained variables. Secondly, creating green financial innovation pilot zones has a positive policy effect on promoting green innovation. Finally, the study identifies industrial structural development, economic growth, and R&D investment as the core channels through which green financing supports green innovation.

The study offers insightful information for decision-makers, but several limitations and criticisms should also be highlighted. The study primarily uses local data from China, which could limit how broadly its conclusions can be applied to other nations or regions. Additionally, more appropriate approaches and methods for comprehensively studying green finance and innovation may exist. Moreover, the study only examines one specific aspect of green finance (inclusive green finance), and a more comprehensive understanding of the subject is required. Nonetheless, the study highlights the significance of green financing in promoting green innovation and sustainable economic development. Policymakers should consider the study’s recommendations to create effective green financing policies and support the transition towards a more environmentally friendly future. However, further research is necessary to address the study’s limitations and explore the broader impact of green finance on innovation and sustainable development.

Xiao et al. (2019) argues that the joint invention of low-carbon environmentally friendly technology (LCEFT) is crucial to combating climate change in developing nations. To address high innovation costs, risks, and unpredictable revenue, the study proposes using financial institutions to support collaborative LCEFT innovation. Through an evolutionary game model, the study examines the impact of green finance on LCEFT innovation among various subjects, including government, businesses, financial institutions, and research organizations. The study finds that complementary resources and talents from multiple issues play a significant role in creating the collaborative LCEFT innovation alliance. However, more than government subsidies and penalties are needed to promote multi-subject collaboration in LCEFT innovation.

Even if the study sheds light on significant aspects of collaborative LCEFT invention, it should be clear about the data and methodology limitations, as the evolutionary game model may only partially reflect the intricate dynamics of LCEFT innovation. The study’s conclusions depend on simulation results. As a result, further research is also necessary to corroborate these findings using information from the real world. However, the study emphasizes the importance of green finance in promoting innovation and technological advancement to address environmental challenges, such as pollution, clean water, and biodiversity preservation in developing and growing economies. Green finance aims to provide substantial cash and investments for environmentally sustainable projects, including climate change financing. The study offers valuable recommendations for policymakers and investors seeking to support collaborative LCEFT innovation through green finance.

A study was published in 2022 by Zhang, Chen, Tang, and Qiao about climate change. Emphasize the importance of green finance, carbon neutrality, and environmental sustainability. The study evaluates sustainable development routes within the energy-environment-climate nexus by integrating innovation and green financing. Climate change and environmental pollution are interconnected, according to research findings. Renewable energy, CO2 emissions reduction, and fossil fuel use decrease can be mitigated through innovative approaches—green financing and environmental funding moderate innovation in the energy-environment-climate nexus. The study also shows that innovative renewable energy sources are more likely to be used when green finance develops rapidly. However, the study has some limitations, such as its generalizability, as it is limited to forty-nine countries that have issued green bonds. It may need to capture the complexity of the relationship more fully between innovation, green finance, and the energy-environment-climate nexus. Additionally, the study only focuses on green bonds and does not consider other forms of green financing. Moreover, the conclusions about green finance’s impacts on environmental pollution and climate change are based on observational data, which may be affected by other unobserved factors.

The study contributes valuable insights into the relationship between green financing, innovation, and the energy-environment-climate nexus. However, further research must overcome the study’s limitations and generalize the findings to other countries or regions. It is also essential to consider other forms of green financing and analyze the complexities of the relationship between green funding, innovation, and the energy-environment-climate nexus to gain a more comprehensive understanding of the subject.

3.1.6 Low-carbon agriculture

The Green Schuldschein is a green bond issued in the German market, specifically through the Schuldschein system. A Schuldschein is a private placement loan instrument widely used in Germany and Austria, like a traditional bond, but with some differences in terms of the way it is structured and the regulations that apply. Van Veelen (2021) presents a thought-provoking analysis of the relationship between finance, environmental change, and agriculture, focusing on the Green Schuldschein as a novel financial instrument. The article stresses the significance of comprehending the interactions between finance and environmental governance and emphasizes the importance of where green financial instruments land. The author's use of assemblage thinking as an analytical framework provides a fresh perspective on green finance's potential to mitigate climate change.

One key finding is that green financial instruments rarely prioritize economic activities that can achieve the most significant carbon reductions. Often, green bonds are used to refinance projects with little expectation of additional environmental benefits. This phenomenon is influenced by institutionalization through mechanisms like the Green Bond Principles. The study questions whether Green Bonds and Schuldscheine can truly fulfill their potential in addressing climate change or national climate targets if they do not effectively target the most carbon-intensive activities. The paper deserves praise for its focus on agricultural actors' agency in the financialization of agriculture and for providing a more nuanced understanding of the connections between finance and the environment. However, a specific case study and a narrow focus on one financial instrument may limit the result's generalizability.

Although the author's criticism of the lack of different standards and limited capability of green financing to combat climate change is fair, they could have offered fresh perspectives or alternative solutions, including various financial instruments and case studies in the research, improved the generalizability of the findings. Furthermore, the author could have offered more practical answers to green finance problems and the potential of green financial products to reduce carbon emissions significantly. Despite these limitations, the article contributes to the literature on finance, agriculture, and the environment and raises significant questions for future research.

3.1.7 Exploring greenium: linking environmental performance to stock market dynamics

Alessi et al. (2021) investigate the role of greenhouse gas emissions and environmental disclosures in the stock market. They introduce the concept of a "greenium" as a risk premium associated with firms' environmental performance.

3.1.8 Climate disaster risk assessment by fund managers

Alok et al. (2020) focus on fund managers' accurate assessment of climate disaster risk. They find that fund managers near disaster-prone regions tend to sell shares of firms in those areas more than managers farther away, emphasizing the need for precise climate disaster risk estimation.

3.1.9 Impacts of green finance from an interdisciplinary perspective

Zhang et al. (2019). contribute to green finance research through their comprehensive review and bibliometric analysis. One of the review's key findings is that green finance is an interdisciplinary area encompassing policies, investments, and governance related to financing and investing in climate adaptation. However, despite the importance of the subject, mainstream economics and finance journals publish few papers on green finance. Most publications in this field focus on environmental and climate issues or policy journals.

3.1.10 Green finance regulations and the impact on greenwashing in corporations

A study (Zhang 2022) examines the influence of green financial system regulations on greenwashing within Chinese corporations. The study indicates that enforcing green financial rules makes highly polluting firms more likely to engage in greenwashing, which involves exaggerating or faking their environmental actions to appear more environmentally friendly than they are. This greenwashing is particularly significant for private firms but less pronounced for state-owned and foreign-owned firms. Green financial regulations impose financial restrictions on highly polluting firms, making it difficult for them to allocate capital efficiently to renewable energy innovation.

The article defines greenwashing as the deceptive conduct of highly polluting firms when confronted with green financial regulations. These firms tend to overstate their commitment to environmental causes while downplaying their adverse ecological consequences.

Greenwashing presents a significant risk in today's corporate landscape. It involves companies misleadingly portraying themselves as environmentally responsible when they may not, eroding trust among consumers and investors. The consequences include potential legal and reputational damage for firms engaged in such practices while hindering genuine sustainability efforts. Regulatory bodies, consumers, and environmental groups are increasingly scrutinizing greenwashing, emphasizing the need for transparency, accurate reporting, and stringent regulations to combat this risk effectively. Greenwashing threatens individual companies and society's trust in the financial sector's role in funding the transition to a more sustainable future, making it imperative to address this issue proactively.

The analysis also uncovers that green financial rules limit highly polluting companies in securing financing for renewable energy innovation, which drives them toward greenwashing behaviors. The article emphasizes the intricate interplay between regulatory interventions, financial constraints, greenwashing behaviors, and renewable energy innovation promotion. It utilizes a concentrated difference-of-difference methodology and comprehensive data analysis to fortify its empirical findings.

Besides, the study acknowledges that the initial effect of green finance regulations on greenwashing behavior tends to diminish over time, suggesting evolving dynamics in how firms are subject to these regulations. Zhang's article significantly contributes to understanding the ramifications of green financial rules on corporate behavior in China. It carries vital meaning for policymakers, corporate executives, and financial institutions operating in sustainable finance.

3.2 Climate change and risk management

This subsection reviews the relationship between climate change and risk management in the financial domain. It spans various critical dimensions, including assessing environmental risks and integrating green finance into investment strategies. It delves into the impact of political uncertainty, firms' performance amid investor surprises, and the role of municipal bonds in climate resilience. Additionally, it scrutinizes climate change financial risks across various sectors and industries. The subsection also examines the influence of extreme weather events and temperature fluctuations on capital markets. It evaluates climate policy risks and their systemic implications while quantifying investment risks within the power generation sector. These multifaceted insights collectively underscore the imperative for initiatives to mitigate environmental risks and pave the path toward a resilient and sustainable financial future.

3.2.1 Environmental risks

Dong et al. (2021) investigate the impact of air pollution on financial decision-making, emphasizing the importance of incorporating environmental risks into investment strategies. Their study shows that higher levels of air pollution during corporate site visits by financial analysts are associated with more pessimistic earnings forecasts. However, air pollution’s effect on analysts’ outcomes dissipates, suggesting a “return to normalcy” effect. Furthermore, analysts based in highly polluted cities may develop a tolerance for air pollution over time. The study emphasizes the potential for green finance to lessen the influence of environmental hazards on financial judgment and encourage more environmentally friendly economic growth.

3.2.2 Climate risk disclosure and institutional investors

According to a study by Ilhan et al. 2022, institutional investors value and demand climate risk disclosures, which could lead to better climate risk reporting by firms. Researchers have found that climate-conscious investors prefer structured and comparable disclosures in mainstream financial filings, which may incentivize firms to improve sustainability and reduce climate risks through their pressure. The study also highlights the significance of climate risk disclosure for informed investment decisions, the correct market pricing of climate-related risks and opportunities, and the growth of green finance. The findings suggest that policymakers and regulators considering the introduction of mandatory climate risk disclosure may benefit society by providing valuable information for informed investment decisions and mitigating systemic risks. Overall, the study emphasizes the crucial role of institutional investors in promoting climate risk disclosure and enhancing the quality of firms' climate risk reporting.

3.2.3 Incorporating green finance into investment decision-making

In 2020, Krueger et al. Study institutional investors' views and actions toward climate risks. The researchers used a survey-based approach to gain insights into how investors consider climate risks in their investment decisions, their motives for incorporating them, and their approaches to managing them. The study found that most investors believe climate risks have financial implications for their portfolio firms, and regulatory troubles have already materialized. Most investors consider risk management and engagement, rather than divestment, the most appropriate approach to addressing climate risks. The researchers identified institutional investors' motives for incorporating climate risks into their investment processes, including non-financial and financial reasons. Investment decisions must also consider climate risks, and institutional investors must have a comprehensive management strategy. The notion of "green finance," which focuses on funding both public and private investments that support reducing greenhouse gas emissions and adapting to them, is discussed in the article. The researchers describe a competition launched by the Review of Financial Studies in 2017 to develop research proposals on climate finance and how the nine projects featured in the volume were selected.

3.2.4 Impact of political uncertainty

Gong et al. (2022) investigate the Impact of international political uncertainty on climate risk for firms in the global financial market. The study uses presidential election events as proxies for political uncertainty and finds that worldwide stock markets overreact to political uncertainty induced by U.S. presidential elections. The research reveals that firms with higher climate risk experience higher return volatility and return correlation amid U.S. election uncertainty. The study concludes that political uncertainty impacts companies with high climate risk exposure.

This study suggests that it is essential to understand stock market reactions and firms' riskiness in today's international financial markets. An uncertain climate policy affects private firms' investment behavior and may affect the company's stock performance. When studying the stock market, it is necessary to consider political uncertainty and climate change risk. These findings have significant implications for green finance, highlighting the importance of evaluating climate risk and political uncertainty in investment decision-making to promote sustainable finance practices.

3.2.5 Firm performance: assessing investor surprises

The working paper by Pankratz et al. (2019) utilizes firm-specific measures of heat exposure and analyzes data from over 13,000 firms in ninety-three countries. The findings reveal that increasing heat exposure negatively affects firms' revenues and operating income. Investors' expectations deviate more from actual financial performance as heat exposure increases. The results of the study emphasize the need for investors to consider climate change risks, particularly extreme temperatures when assessing firm performance and making investment decisions.

3.2.6 Municipal bonds

Painter (2020) examines the impact of climate change on municipal bonds and climate change risk pricing on the market. The study reveals that counties facing higher climate change risks experience higher underwriting fees and initial yields when issuing long-term municipal bonds, particularly those with lower credit ratings. This research suggests that the market prices climate change risks for long-term securities, with investor attention playing a significant role in pricing these risks. These findings highlight the need to consider climate risks in financial valuation and risk management strategies to ensure resilience in municipal bond investments.

3.2.7 Financial risks

In their research paper, Monasterolo (2020) explores the link between climate change and the financial system, emphasizing the importance of considering climate-related financial risks. The author highlights the potential for the financial system to contribute to sustainability goals by aligning investments with climate targets. However, the paper also warns about existing exposure to carbon-intensive assets, which poses risks for investors and could lead to financial instability. To address these challenges, the author introduces science-based approaches like climate value at risk, climate spread, and climate stress tests, which enable the assessment and pricing of climate risks in investment portfolios.

3.2.8 Extreme weather uncertainty and firm returns

The paper by Kruttli et al. (2019) investigates how extreme weather events impact firm returns and stock options. The study focuses on hurricanes and their effects on firms located in the landfall region. The research shows that extreme weather uncertainty leads to significant and long-lasting increases in implied volatility in stock options, indicating heightened uncertainty in the market. The findings emphasize the importance of considering extreme weather uncertainty in financial markets and highlight the potential economic significance of hurricane forecast improvements. Overall, the study contributes to a better understanding the relationship between extreme weather events and solid financial returns.

3.2.9 Temperature's impact on capital markets

Bansal et al. (2016) examine the economic consequences of global warming and long-term temperature shifts on capital markets. They reveal a positive risk premium associated with global warming and discuss its implications for quantifying the social cost of carbon emissions and understanding the long-term effects of temperature on financial development. Bansal and Ochoa (2011) analyze the relationship between temperature, aggregate risk, and expected returns on international capital markets. Their findings suggest that countries closer to the Equator exhibit a positive temperature risk premium, highlighting temperature as an aggregate risk factor affecting economic growth.

3.2.10 Climate policy risk and the financial system

Battiston et al. (2017) investigate climate policy risk's influence on the financial system using a network-based climate stress-test methodology. They emphasize the significant impact of climate-policy-relevant sectors on the financial system and stress the importance of estimating climate risks' effects and considering climate-related factors in economic decision-making and stress testing.

3.2.11 Quantifying investment risks in the power generation sector

Blyth et al. (2007) quantify investment risks associated with climate policy uncertainty in the power generation sector. They emphasize the risk premium imposed by climate policy uncertainty and the importance of long-term regulatory certainty and clear investment signals for promoting sustainable investments.

3.3 Advancing green finance in asia: transparency and lower costs

This subsection examines papers, all focusing on green finance in Asia. These studies demonstrate a growing recognition of green finance as a critical tool for addressing climate change while promoting economic growth. China has led this by directing investment toward environmentally sustainable projects and technologies. Also, the other study provides valuable insights into the characteristics, risks, and returns of green bonds in Asia and the Pacific, along with policy recommendations to improve the market.

3.3.1 The importance of green finance in China

According to the 2021 climate transformation risk review, global temperatures will grow by no more than 1.5 degrees Celsius. If we do not take immediate action, we will experience catastrophic climate change. It is essential to implement climate change strategies and policies to combat climate change in line with contemporary trends in economic growth (Rogelj et al. 2013).

Regarding global warming, carbon dioxide emissions take the spotlight, a point certainly reinforced by NASA. China's role in carbon dioxide emissions is nothing short of monumental. As one of the leading contributors to cumulative carbon dioxide emissions, China bears significant responsibility for rising global temperatures that endanger our planet (Larsen et al. 2021; China Power CSIS, 2023; Al Jazeera, 2023).

The impacts of global warming have reverberated distinctly in China, exemplified by a notable increase in heatwave days in 2020, reaching 4.51, surpassing the average from 1986 to 2005. This heatwave resulted in a staggering 92% increase in mortality. Furthermore, the temperature rise caused China to lose approximately 31.5 billion work hours, leading to a 1.4% decline in GDP (Cai et al. 2021).

China has been one of the global leaders in green finance thanks to its economic growth to combat climate change (UNFCCC, 2017). Through financial products and services that support ecologically sustainable growth and development, China has opened doors to investment in environmentally friendly projects and innovative technologies (He et al. 2019). These investments encompass renewable energy, energy efficiency, and other environmentally sustainable initiatives. In addition to spurring economic growth, China's ambitions have reduced air pollution and reliance on fossil fuels, marking a significant shift toward a more sustainable and greener future (Zhao et al. 2011).

The text delves into various facets of China's pivotal role in addressing climate change. It offers a comprehensive perspective, encompassing the primary driver of climate change—global warming triggered by carbon dioxide emissions. It sheds light on China's multifaceted involvement, from its substantial contribution to carbon dioxide emissions to its dedicated efforts to curtail them. Additionally, it underscores China's emergence as a global leader in green finance. These insights collectively contribute to a holistic understanding of China's broader initiatives in green finance and its commitment to environmental sustainability.

3.3.2 The traits and risks of Asian green bonds

Taghizadeh-Hesary and Yoshino (2019) conduct a comparative study of green bond markets in different regions, focusing on Asia and the Pacific. The study intends to fill a hole in the literature by analyzing the characteristics, risks, and returns of green bonds in this region. The study uses a combination of theoretical background and empirical analysis, utilizing data from reputable sources such as Bloomberg New Energy Finance and the Climate Bonds Initiative.

The study finds that Asian green bonds exhibit higher returns, risks, and heterogeneity. By accounting for 60% of all issuances, the banking industry dominates the Asian green bond market. The study suggests policy recommendations to raise the pace of return of bonds allocated by the banking sector through tax spillover and to encourage the diversification of issuers, with a higher participation rate from the public sector and de-risking policies.

Although the research presents a detailed analysis of green bond markets in Asia and the Pacific, the analysis is limited to green bonds. It does not include other green financial instruments. Additionally, the study data only covers 2017 to 2020. Hence, findings need to reflect current conditions better. The study's recommended policies require further detail concerning how they can be implemented, such as increasing the speed of return on bonds given by the banking sector and diversifying issuers.

The study also uses unbalanced panel data; a balanced data set would have been preferable. This study provides a practical understanding of the characteristics, risks, and returns of green bonds in Asia and the Pacific, along with policy recommendations to improve the market. Interpreting the study's findings, however, requires consideration of its limitations.

3.4 Investor behavior

The papers discussed in this subsection emphasize investor behavior’s role in green finance. Together, these papers emphasize the significance of incorporating behavioral factors into investment decisions in green finance. They also highlight the potential impact of behavioral biases on investment decisions. They also highlight the need for a more comprehensive understanding of characteristic-based portfolio returns predictability in green finance.

3.4.1 Predicting portfolio returns

Alti and Titman (2019) propose a dynamic model that examines the predictability of characteristic-based portfolio returns and the systematic factors that influence firm fundamental evolution. They assume that investors need to be more confident in their ability to assess the disruption climate, which creates predictable return differences among firms with different exposures to disruption. The study’s simulations show that portfolios betting in favor of newcomers, such as growth firms, unprofitable firms, and high-asset growth firms, are positively exposed to disruption. In contrast, portfolios betting in favor of incumbents, such as value firms, profitable firms, and low-asset growth firms, are negatively exposed. The study suggests that changes in the evolution of firm characteristics, their exposure to disruption, and the persistence of characteristic-sorted returns are essential for understanding characteristic-based anomalies in stock returns, particularly in green finance. Overall, the study highlights the importance of incorporating the concept of a disruptive climate and its effects on the evolution of firm fundamentals in understanding characteristic-based anomalies in green finance.

3.4.2 Evidence from the U.S. mutual fund market

Hartzmark and Sussman (2019) examine the relationship between sustainability rankings, fund flows, and investment decisions in the U.S. mutual fund market. The study finds that funds with high sustainability rankings receive net inflows. In contrast, those with low sustainability rankings experience net outflows, suggesting that investors value and consider sustainability in their investment decisions. The study also highlights the potential impact of non-financial factors on financial decision-making and the importance of sustainability in investment decisions. However, the study only examines a specific market and period. It does not analyze individual investor behavior or provide a detailed analysis of Morningstar’s sustainability criteria to rate mutual funds. The study is relevant to green finance, proving that investors view sustainability positively and are willing to allocate funds to more sustainable investments.

3.4.3 Smart carbon portfolios: managing investment risk in a low-carbon economy

Benedetti et al. (2021) focus on managing investment risk associated with climate change and the shift to a lower-carbon economy. They propose models for constructing Smart Carbon Portfolios, considering the potential impact of carbon pricing on fossil fuel stocks and highlighting the potential benefits of portfolio adjustments in managing investment risk.

3.5 Green finance and decarbonization

Global concern over environmental preservation, climate change, and sustainable development policies has grown recently. Several studies have examined current and upcoming problems and possibilities to determine how green funding affects economic decarbonization. Decarbonization and reducing climate change may be facilitated by green finance, according to research. More research is needed to fully understand governments and companies' role in supporting decarbonization. The findings stress the necessity of adopting long-term strategies to boost private financing for green energy projects and guarantee sustainable development.

3.5.1 Green finance's impact on decarbonization

Jia (2023) highlights the growing global concern about environmental protection measures, climate change, and sustainable development policies. Global concern about environmental protection measures has led the global community, which includes international organizations, research institutions, and international businesses, to focus on green finance. Jia's study aims to assess the impact of green financing on economic decarbonization by analyzing present and prospective issues and opportunities. However, the study finds that green finance in the United States, China, and Russia has yet to demonstrate a visual impact. Green bonds are these countries' most used green finance tool for decarbonization, but other green finance types are rarely used. According to a three-country case study, concrete proof has not been established that green bond issuance lowers business carbon intensity. Furthermore, it is unknown if the existing green bond financing mechanism significantly accelerates the shift to a low-carbon economy. According to Jia's study, further research is necessary to fully grasp how well green financing works to encourage decarbonization and how companies and government organizations fit into this process.

3.5.2 Green finance, climate change and decarbonization

Pástor et al. (2022) analyze the short-term outperformance of green assets in the context of ESG criteria in investment decision-making. The researchers caution that past performance does not necessarily predict future performance and explain why investors should be wary of relying solely on past performance when investing in green assets. They assess that green assets have lower expected returns than brown assets due to investors' eco-friendly tastes and the fact that greener assets are a better hedge versus climate risk. The analysis concludes that green stocks have outperformed brown equities recently. Still, it also identifies weaknesses in the study, including its narrow focus on the American stock market and the brief time limit it covers. The U.S. stock market, which might not accurately reflect worldwide trends in sustainable investment performance, is the primary subject of the study. The research only looks at 2012 to 2020 to determine green assets' long-term performance; it could need revision.

3.5.3 Operating leverage and cost structures

Detemple and Kitapbayev (2020) investigate investment decisions in the power generation sector, specifically the choice between a green power plant and a traditional power plant, and the effect of operating leverage on managerial policies, investment decisions, and values. The study discusses the potential for two technologies with stochastic variable costs and ongoing costs to provide a stochastic revenue stream. The findings offer a fresh perspective on the importance of green finance in modern societies, given the position of renewable energy in mitigating the negative consequences of human reliance on fossil fuels, such as global warming and other climate change sensations. The study suggests that investing in green energy can provide immediate welfare benefits for agents and be a competitive alternative to traditional power generation despite declining fossil fuel prices. The study highlights the importance of considering cost structures and operational decisions when determining the optimal investment policy for firms facing similar investment choices.

3.5.4 The economic impact of climate change and the case for initiative-taking climate policies

Bovari et al. (2018) explore the macroeconomic consequences of climate change and private debt dynamics. They highlight the severe economic implications of climate change and advocate for initiative-taking climate policies and sustainable financial measures.

3.5.5 Macroprudential policies: impacts on green finance and decarbonization

An article by You et al. (2023) examines macroprudential policies' multifaceted impacts on economic growth and crisis prevention across various economies. According to an empirical analysis of 100 economies between 2000 and 2017, macroprudential policies indirectly promote economic growth by reducing the risk of financial crises. However, the direct effects vary significantly among economies, with high-income nations experiencing minimal direct impact, upper-middle-income countries benefiting through channels such as investment and leverage, and lower-income economies facing negative immediate consequences such as reduced investment and higher loan interest rates.

The study's findings have implications for green finance, drawing parallels between economic crises and environmental risks. The indirect positive impact of macroprudential policies on economic growth aligns conceptually with how sustainable financial practices in green finance can contribute to mitigating environmental risks. The study's emphasis on tailored policies resonates with the principles of green finance, highlighting the importance of customized approaches to address diverse ecological challenges in different regions. However, challenges arise in balancing the potential economic costs associated with macroprudential policies and green finance initiatives, requiring policymakers to carefully navigate the trade-offs between short-term financial considerations and long-term sustainability goals.

3.5.6 The role of international investments in sustainable development

The research conducted by Chen and Yu 2023 elucidated in their study offers invaluable insights into the local ramifications of Chinese overseas investment, specifically within the Belt and Road Initiative framework. Their investigation extends beyond conventional considerations of economic activities and institutional quality, homing in on the often-neglected aspect of poverty reduction. The study compellingly illustrates that active Chinese investment projects can substantially diminish poverty levels among nearby residents. What sets this research apart is its introduction of the pivotal mediating factor—institutional improvement—casting light on its integral role in amplifying the poverty reduction impact of Chinese investment, particularly concerning income poverty measurement.

This study holds significant promise in advancing ongoing discussions surrounding the influence of international investments and financial integration on constructing a sustainable and inclusive global economic landscape. By expanding our understanding of the nuanced connections between investment, poverty alleviation, and institutional dynamics, Chen and Yu's research contributes meaningfully to the evolving dialogue on how these factors collectively shape the trajectory of global economic sustainability.

4 Exploring research avenues and broadening the research landscape

4.1 Charting the future of green finance: recommendations and research avenues

The research suggests a need for more studies and academic attention to green finance. Researchers and scholars should focus on critical issues, challenges, current observations, and areas for further research and investigation that will help enhance our understanding of green finance and its potential to address environmental challenges.

• A multidisciplinary topic known as "green finance" includes governance, investments, and policies related to financing and funding climate adaptation. To fully understand green finance, it is crucial to promote cooperation between scholars from several fields, including economics, finance, environmental science, and policy.

• The research highlights a need for more publications on green finance in mainstream economics and finance journals. Conducting case study analyses of successful green finance projects can provide valuable insights and best practices. Researchers should examine the impact of green finance projects and identify successful strategies to replicate in other contexts.

• The research emphasizes the importance of including diverse perspectives and experiences in green finance research. Scholars from developed and developing nations should contribute to the field to ensure a more comprehensive global understanding of green finance and its global implications.

• Researchers, policymakers, and investors should pay more attention to addressing the limited availability of green finance projects. They should expand the pool of skilled green finance project developers. These efforts will lower the cost and complexity of creating and executing such tasks.

• Policymakers and central banks play a crucial role in green finance. Further research should focus on policy incentives, tax measures, and institutional support for green finance initiatives and fostering sustainable development.

• Explore future research directions such as standardization and regulatory frameworks, fostering innovation, and managing risks. Chen and Kim's study, which underscores the absorptive capacity of economies for international capital, enriches the discourse on mitigating risks linked to financial integration. The threshold effects illuminated in their research offer insights for policymakers, shedding light on the potential advantages and drawbacks of financial openness. This aligns with the article's advocacy for delving into innovative financial instruments and ensuring transparent climate risk disclosure.

• Delve into emerging research pathways, encompassing standardization and regulatory frameworks, fostering innovation, and risk management. A notable example is the recent study by Chen and Kim in 2023, which sheds light on the absorptive capacity of economies for international capital. This contribution enriches discussions around mitigating risks linked to financial integration. The study's exploration of threshold effects offers policymakers nuanced insights, enhancing our understanding of economic openness's potential benefits and drawbacks.

4.2 Expanding the scope based on the 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.

• Beyond the G-20: Explore diverse contexts to understand the impact of green financing on decarbonization across various nations or regions, considering factors like energy policy, governmental laws, and digital funding.

• Address Stranded Assets: Focus on identifying viable solutions and comprehending the broader social and environmental implications associated with stranded assets, aiming to mitigate risks effectively.

• Public Expenditure and Green Economy Performance: Investigate the relationship between public expenditure and green economy performance, particularly in nations engaged in initiatives like China's Belt and Road Initiative (BRI).

• Incorporate Environmental Risks into Investment Strategies: Enhance investment practices by examining how environmental concerns like air pollution influence financial decision-making and integrating ecological risks into investment frameworks.

• Promote Climate Risk Disclosure: Foster transparency and responsible investment practices by exploring the role of institutional investors in promoting climate risk disclosure and improving firms' climate risk reporting quality.

• Understand Investor Perspectives on Climate Risks: Gain insights into the views, actions, and motivations of institutional investors regarding climate risks in investment decisions through surveys or interviews, enabling comprehensive strategies.

• Country-Specific Focus: The Case of China: Study the effects of green financing programs in specific nations, such as China, to comprehend their impact on economic expansion, carbon emissions reduction, and the transition to a low-carbon economy.

• Evaluate the Latest Academic Research: Assess various green finance projects by reviewing the latest academic research published in mainstream financial publications, facilitating comparisons and analysis.

By implementing these recommendations and broadening the research scope, we can advance our understanding of green finance and its role in promoting sustainable development.

4.3 Expanding the scope based on keyword analysis

Based on the analysis of the keywords presented in Table 2, it is evident that various avenues for future research exist in this domain.

• Exploring the Impact of Green Finance on Sustainable Development: Given that "Green finance" is the most frequently mentioned keyword with 63 instances, it is crucial to delve into how financial investments in green initiatives contribute to sustainable development, particularly within the context of "Green Finance and Sustainable Investment" and its economic and financial implications.

• Investigating the Relationship Between Climate Change and Environmental Impact: With "Climate change" as the second most frequent keyword, appearing 59 times, it is vital to study the direct and indirect environmental effects of climate change. Focus on "Climate Change and Environmental Impact" as a primary grouping to understand how climate change affects the environment.

• Analyzing Strategies for Carbon Emission Reduction: Since "CO2 emission" and "Carbon dioxide" are among the top keywords, with 32 and 19 mentions, respectively, consider exploring strategies and policies for reducing carbon emissions and relieving the impacts of greenhouse gas emissions within the context of "Carbon Emissions and Reduction."

• Promoting Sustainable Development Through Financial Services: Given the significance of "Sustainable development," which appears 23 times, investigate how financial services and investments can be harnessed to drive sustainable development, particularly within the realm of "Development and Innovation" and its environmental impact.

• Fostering Innovation in Renewable Energy: With "Renewable energy" as a critical keyword, mentioned 13 times, focus on how innovation in renewable energy sources can contribute to sustainable practices and environmental preservation, categorized under "Energy Categories" and "Renewable Resources."

• Evaluating the Role of Green Bonds in Sustainable Investment: Given the relevance of "Green bonds," appearing 12 times, it is essential to determine how these financial instruments can effectively drive investments toward initiatives that promote sustainability within the context of "Green Finance and Sustainable Investment" and "Sustainable Investment."

• Understanding the Geopolitical Implications of Green Finance: Given the global relevance of "China" and its mention 17 times, explore the geopolitical and regional considerations associated with green finance, focusing on "Geopolitical and Regional Considerations" and its economic and financial implications.

• Analyzing Economic Growth and Environmental Sustainability: With "economic growth" mentioned ten times, investigate the relationship between economic growth, environmental sustainability, and innovation. Consider how financial concepts and analysis intersect with ecological sustainability and impact.

• Exploring Alternative Energy Sources for Sustainability: Given the importance of "alternative energy," appearing nine times, we delve into how adopting alternative energy sources can contribute to sustainability, categorized explicitly under "Energy Categories" and "Renewable Resources."

• Enhancing Environmental Protection through Innovation: Given the relevance of "innovation" (10 mentions), explore how innovative technologies and approaches can be harnessed to improve environmental protection and sustainability within the context of "Technology and Innovation" and "Environmental Impact."

5 Conclusion

This analysis offers comprehensive reviews and a summary of ideas for halting climate change and fostering sustainable development. The study’s results can help researchers, policymakers, investors, and stakeholders motivate significant action in green finance. According to the papers under consideration, green finance is crucial for promoting environmental innovation, efficient economic growth, and sustainable development. Incorporating keyword data into research, policy, investing, and business can give researchers, policymakers, investors, and companies valuable insights. Collaboration and coordination between stakeholders are vital to mobilizing financial resources and promoting eco-friendly practices. Innovative economic instruments like green bonds and carbon markets can contribute to low-carbon economies.

The studies also point out that green finance research has some limitations and needs improvement. The lack of diversity in the authors’ perspectives and backgrounds may have limited the review’s comprehensiveness, highlighting the need for more attention to researchers from developing economies. Some studies suggest that green finance may require more consideration in mainstream finance journals. A more precise definition of “green finance” is needed to avoid confusion. Finally, while the analyzed studies provide valuable insights into green finance in China, Bangladesh, and Asia, their generalizability to other regions and contexts may be limited.

6 Future research directions

Based on the comprehensive review of "Advancing Green Finance: A Review of Climate Change and Decarbonization," the following future research directions can be identified and organized into related subjects:

6.1 Standardization and regulatory frameworks

Establishing standardized definitions and regulatory frameworks is pivotal to strengthening the foundation of green finance. Researchers can contribute to this effort by investigating how standardized reports and regulations can facilitate global green finance expansion. Analyzing the effectiveness of diverse policy approaches and understanding the challenges of enforcing green finance regulations will provide valuable insights (Krushelnytska 2017; Zhang et al. 2022c). Additionally, cross-country studies can enhance this framework by comparing how green finance performs in various economic and environmental contexts.

6.2 Fostering innovation and managing risks

Green finance is closely intertwined with innovation and technology. Researchers can explore how green finance fosters technological innovation and sustainable business models. This exploration can unlock the potential of financial instruments to drive eco-friendly economic development (Xiao et al. 2019). Investigating financial risks linked to stranded carbon assets is crucial. Research in this area can pinpoint strategies to mitigate these risks and promote a more sustainable economic approach (Chevallier et al. 2021).

6.3 Environmental performance and stock markets

Understanding the relationship between environmental practices and stock market dynamics is vital for comprehending how green finance influences investor behavior. Researchers can explore the "greenium" concept, representing the value of environmentally friendly investments (Alessi et al. 2021). Furthermore, they can investigate the psychological and cognitive factors that shape investors' preferences for sustainable investments, shedding light on how these factors interact with green finance to influence investment decisions (Hartzmark and Sussman 2019).

6.4 Customizing solutions for specific sectors

In addition to general definitions and regulations, green finance research should focus on sector-specific applications. Sectors such as low-carbon agriculture play a crucial role in green finance, and researchers can explore the effectiveness of financial instruments within these domains (Van Veelen 2021). Furthermore, tailored policy recommendations for specific areas, such as the Asian green bond market, can guide policymakers and stakeholders seeking to improve risk management, diversify issuers, and attract public sector participation (Zhao et al. 2011).

6.5 Investigating long-term environmental and economic effects

To understand the long-term impacts of green financing, researchers must examine their effects on the environment, the economy, and society. Understanding institutional investors' strategies to manage climate risks is a priority (Alti and Titman 2019). To effectively address climate risks through green financing, case studies of successful risk management techniques can provide valuable insights. A global comparative analysis spanning nations and regions can offer a holistic view of climate hazards and risk management strategies, contributing to a broader understanding of green finance's international implications.

6.6 Transitioning from carbon-stranded assets

Exploring the connection between decarbonization and stranded carbon assets offers a creative opportunity to investigate how green finance can help transition economies away from carbon-stranded assets, contributing to decarbonization efforts (Chevallier et al. 2021; Lin et al. 2022).

6.7 Promoting innovation for climate disaster risk assessment

Investigating the role of green finance in promoting innovation can be creatively linked with climate disaster risk assessment. Research can focus on how innovative green financing mechanisms can enhance assessing and management of climate disaster risks (Irfan et al. 2022; Alok et al. 2020).

6.8 Green finance's role in sustainable agriculture

Researchers can creatively explore how green financial instruments, like green bonds, can support sustainable agriculture by assessing the impact of innovative financing instruments on this sector and the role of environmental economics (Van Veelen 2021; Zhang et al. 2019).

6.9 Ensuring transparent climate risk disclosure

The concept of "greenium" in stock markets can be related to greenwashing and corporate behavior by examining how transparent and credible climate risk disclosure policies affect stock market behavior (Alessi et al. 2021; Zhang 2022).

6.10 Exploring innovative financial instruments

Researchers can explore how innovative financial instruments beyond green bonds, such as blue finance and digital finance, can gain more prominence in mainstream economics and finance journals, bridging the gap between environmental studies and mainstream economics (Eyraud et al. 2013; Taghizadeh-Hesary and Yoshino 2019).

6.11 Geographical expansion and central banks' influence

The role of green finance in different geographical areas and sectors can be related to central banks' strategies. Research can focus on how central banks can influence the geographical expansion of green finance, especially in the context of G-20 economies, and support decarbonization (Zhang et al. 2022c; Volz 2017).

6.12 Unraveling behavioral factors in green investments

Investigating behavioral aspects of green investments can be creatively related to environmental risk research. By examining how psychological factors influence green asset returns and risks, scholars can develop strategies for enhancing risk management in climate change (Hartzmark and Sussman 2019; Zhang et al. 2019).