From Green-Bond Valuation and Climate-Risk Integration to Investor Stewardship and ESG Credibility
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Abstract
This paper examines the development of sustainable finance through three interconnected dimensions: green bonds, climate-related financial mechanisms, and responsible investment. The literature shows that green bonds have evolved from a specialised financing instrument into a broader mechanism for mobilising capital, signalling environmental commitments, and supporting corporate and public sustainability strategies. However, their financial characteristics remain conditional on market liquidity, issuer credibility, certification, institutional arrangements, and investor preferences. Sustainable finance also extends beyond labelled securities because climate-related physical and transition risks increasingly affect conventional asset prices, banking systems, financial stability, and corporate financing decisions. At the investor level, environmental, social, and governance considerations influence portfolio construction through screening, ESG integration, engagement, stewardship, and impact objectives. Nevertheless, the effectiveness of these strategies is complicated by substantial disagreement among ESG rating providers and by differences in investor objectives. The literature therefore suggests that sustainable finance cannot be assessed exclusively through issuance volumes, ESG scores, or short-term financial performance. Its development depends on the interaction between credible environmental information, financial institutions, corporate behaviour, investor preferences, and regulatory frameworks capable of improving comparability and limiting greenwashing.
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