Sustainable Finance Mechanism: The Role of Green Bonds in Climate-Resilient Economic Systems

Abstract

Green bonds have increasingly demonstrated potential in improving economic stability by channelling funds towards advancing climate resilience, particularly in emerging economies, where issuance supports renewable energy transition and poverty reduction. However, constraints such as regulatory inconsistencies, greenwashing risks, high issuance costs, and limited broader adoption. This systematic literature review explores the role of green bonds as a key sustainable finance tool in fostering climate-resilient economies. The study synthesizes evidence on the evolution, economic impact, growth, case studies, and barriers of green bonds. The finding highlights that green bonds have evolved from a niche market into a mainstream, valuable asset, underscoring a strong alignment with the Paris Agreement and the Sustainable Development Goals, emphasizing their significant contribution to risk mitigation while promoting growth and inclusivity. The review also shows that green bonds effectively channel capital toward climate-resilient infrastructure, deliver a measurable “greenium” that reduces borrowing costs, and generate other benefits, such as poverty reduction, job creation, and renewable energy deployment, particularly in emerging economies. The study provides actionable insights for policy, such as standardizing frameworks and incentivising issuances in merging regions to address financing gaps. This review provides a foundation for stakeholders to advance sustainable finance strategies amid increasing climate barriers.