Green finance plays a vital role in achieving the Sustainable Development Goals (SDGs), especially SDG 7, in accordance with the UN Agenda 2030 [1]. Green finance projects comply with the framework of the 2015 Paris Climate Agreement, which focuses on mitigating global warming and is an important basis for the development of the global green bond market [1].

Bibliometric analysis reveals that while the previous articles are mainly related to green finance for developing countries, especially China, the latest ones are related to the risks of climate finance, green bonds and the inclusion of financial issues in the wider regions of energy emissions; these studies provide useful insights for researchers, investors, and policymakers on the importance of environmental investments in promoting economic sustainability ^{[2][3][4][5][6][7][8][9]}[2,3,4,5,6,7,8,9].

Due to the growing interest and massive European movement towards a greener society and business, the term green finance is used to describe the different types of products created to support both public and private green investments, as well as initiatives and policies to endorse the execution of environmental mitigation or adaptation projects.

The task of green finance is to strategically include the financial sector in the transition to minimal carbon emissions and to solve climate problems, as well as to increase economic well-being; therefore, it mainly focuses on the environmental aspect of sustainable development ^{[10][11][12][13][14]}[10,11,12,13,14].

The popularity of green finance stems from the consideration of preventing potential climate crises, making it a priority within each country’s policies and global formats for their cooperation. At the same time, the broader and more organic integration of green finance in the context of economic activity results from the awareness of economics consistency in a given time perspective, if the climate impact of economic activities is ignored, and the risks associated with climate change are not mitigated.

Between 1980 and 2021, weather and climate-related extremes caused economic losses estimated at EUR 560 billion in the EU Member States, of which EUR 56.6 billion is from 2021 alone [15].

Extensive research has been conducted analyzing the relationships between higher spending on human resources, green energy research and development, and the growth of the green economy, emphasizing the intermediary role of green finance. However, the impact of the growth of the green economy on GDP per capita differs between countries with different starting points of economic development, which has not been sufficiently studied ^[16][17][16,17].

Recent studies prove that green finance promotes the use of renewable energy, with incremental positive effects. However, this effect can be observed in developed countries or emerging economies with strict environmental protection and high influence of green finance ^[18][19][18,19]. The development of capital markets and bond markets affects the use of renewable energy ^[20][21][20,21]. However, in general, in recent years, green finance studies have mostly been conducted in developing countries; only a few thorough studies on European countries can be found ^{[19][22][23][24][25]}[19,22,23,24,25].

2. Benefits of Green Finance

Definitions of green finance can be found in several publications—^[26][45] indicates that there are very large differences between the definitions of green finance, as well as different types of organizations, economic sectors define their own indices and definitions of what is described as green finance. According to a 2016 publication by the World Bank Group ^[27][46], green finance could be broadly defined as “the financing of investments that provide environmental benefits”. Other researchers ^[28][47], while studying the evolution of green finance and its enablers, concluded that the enablers can be classified under a number of wide-ranging factors, for example, economic indicators, expansion of supervisory and governing framework, possibilities and support for investments, commitment of the governmental and other authorities to provide help and support, scientific and technological progresses, development and regulation of financial and capital market products. As mentioned in the field of investment and green financing, one of the most important green financial instruments is green bonds. Green bonds appeared in current years as a response to the severe need to assemble capital to reinforce the United Nations’ Sustainable Development Goals, as well as the objectives of the Paris Agreement. Hence, nations are proceeding towards a low-carbon and climate-resilient future, and, as a result, there is a growing need for financing solutions. Green bonds are supposed to generate and transfer capital from capital markets for various projects, including climate change mitigation and adaptation, renewable energy projects, and others ^[29][48]. Green bonds are built like traditional bonds—fixed-income debt instruments. An additional tendency in the market is the speeding up of sovereign green bond issuances as governments wish to advance sustainable policies and fulfil their national sustainability agendas ^[30][31][32][49,50,51]. The success of a green bond issue is determined by the issuer’s reputation, sufficiently good credit rating and environmental, social and governance performance ^[33][52]. The authors summarized the main benefits of the development of green finance and the issue of green bonds in Table 12. ^{46][58][61][62][63][64][65]}[52,65,77,80,81,82,83,84]). There is evidence that issuing green bonds comprises a challenge in terms of costs of meeting corresponding requirements ^[63][66][82,85]. The whole group of challenges in relation to investors’ perspectives addresses problems of lack of financial and economic benefits for opting for green bonds, green bond labeling and scarcity of information about green bond project impact, which is pivotal to support a long-term investment case. Regulatory flaw backs were also cited as a challenge to green bonds ^[54][67][73,86]. As can be seen from the Table 2, the development of green financing in general, and green bonds in particular, affects issuers, investors, and regional development, solves environment-related issues, but specifically solves environment-related issues, namely lower carbon emissions and promotes the production and utilization of renewable energy. Green bonds, being the largest single source of green finance, have had a significant impact on the renewable energy supply sector by providing a crucial source of financing for renewable energy projects ^[50][51][52][69,70,71]. They are designed to fund projects that have positive environmental and climate-related benefits, such as renewable energy infrastructure, energy efficiency initiatives, and other environmentally friendly projects. Some of the key impacts of green bonds on renewable energy supply, which are expected to benefit most from the growing popularity of green bonds, are also identified. Green bonds have channeled substantial investments into the renewable energy sector. This additional financing has enabled the development and expansion of renewable energy projects that might have otherwise been delayed or underfunded due to the high upfront costs associated with renewable energy infrastructure. The growth of the green bond market is directly influenced by economic stability, the legal environment and the green bond interest rate [3]. The availability of green bonds has expedited the deployment of renewable energy technologies. With sufficient funding, renewable energy projects can be implemented on a larger scale and at a faster pace, contributing to the global transition to cleaner energy sources. A number of research papers support this argument by providing evidence that green bonds significantly foster renewable energy production ^{[19][22][53][54][55]}[19,22,72,73,74]. In particular, green bonds increase wind and hydro-energy consumption in OECD countries ^[43][62]. Simultaneously, green bonds do not meaningfully influence solar energy arrangements in these countries. A mutual connection between the volume of green bond and the usage of renewable energy can be observed in OECD countries. The previous research demonstrated that the existence and development of green bonds as financial instruments and well-developed regulatory guidelines on the field perform an important and affirmative role in encouraging investment in renewable energy ^[22][56][22,75]. Nevertheless, oil price volatility and geopolitical risk have a contrary effect. Green bonds have the potential to significantly impact carbon emissions by providing a financial mechanism to support environmentally sustainable projects and initiatives. Projects that have positive environmental or climate-related benefits can include renewable energy infrastructure, energy efficiency improvements, sustainable transportation, afforestation, and other initiatives aimed at reducing greenhouse gas emissions and mitigating climate change. Green bonds attract a diverse range of investors, including those specifically interested in environmentally responsible investments. This broader investor base has expanded the pool of funds available for renewable energy projects, reducing dependence on traditional sources of funding and potentially lowering financing costs. Instruments like green bonds obtained approval from investors caring about environmental issues, and those investors looking for portfolio diversification, while the green bonds are such an instruments capable to provide such a diversification [6]. Another research stipulates that the green bond as a market is interesting for both new investor groups and those searching for capital injections ^[57][76]. As the renewable energy sector gains access to more capital through green bonds, economies of scale can be achieved. This often leads to cost reductions in renewable energy technologies, making them more competitive with fossil fuels and contributing to their wider adoption. The data demonstrates that the spread between green bonds and conventional debt instruments is about 35–40 bp lower ^[45][64]. Moreover, green bonds should be considered as an efficient instrument allowing to diminish the costs of debt financing and to develop environmentally friendly projects. The success of green bonds in the renewable energy sector has inspired other industries to consider issuing similar bonds to fund environmentally friendly projects, thereby creating a positive spillover effect across various sectors. A complex study was conducted on dependence structure and dynamic connectedness between green bonds and financial markets. There is a relevant indication of the high level of integration between financial market and green debt financing instruments. Moreover, it should be considered that the global equity market is the net spillover spreader, although the global corporate debt market is the net spillover receiver ^[58][77].

3. Challenges of Green Finance

Green bonds are an essential element in achieving sustainability goals. Nevertheless, there are no common rules or standards for green bonds, bringing to life the discussion about greenwashing. The European Union (EU) Commission’s action plan on funding sustainable growth includes the framework of an EU green bond standard, methodologies for low-carbon indices, and metrics for climate-related disclosure ^[29][48]. In addition, the International Capital Market Association’s Green Bond Principles ^[59][78] and the Climate Bonds Initiative’s Climate Bond Standards ^[60][79] clarify whether a bond qualifies as green. As shown in Figure 13, there are four main principles that define a bond as green. Nevertheless, no specific legal requirements for issuing green bonds exist, which would hinder the transparency and market participants’ interest in such a product. Further, the authors summarize the challenges for green finance and green bonds development by splitting them into four different groups: market-, issue-, investor-, and law-related ones. As Table 23 shows, a vast majority of identified challenges deal with market-related factors, varying from the overall macroenvironment to the greenwashing risks (as studied by other researchers ^[33][ However, the size of the green bond market remains small compared to the challenges it is meant to address and to the overall traditional bond market ^{[33][34][45][55][58]}[52,53,64,74,77]. As part of the impact of green financing on the environment, studies related to the water supply system and its financial benefits in terms of the optimization of electricity consumption have been conducted ^[70][33]. There are even attempts to create a low-carbon financial index ^[71][89] and rate countries on their investment in low-carbon energy. Digitization has great potential within the green transformation; however, the integration of digital technologies into finance does not automatically have a highly positive impact on the environment and climate change. A group of authors ^[72][73][74][90,91,92] argues green technology innovation is facilitated by digital finance in a way that digital finance encourages business innovation in green technology by alleviating financial constraints. Green energy technology awareness is studied but not sufficiently from the investor’s perspective—how important it is in investment decision-making and how it can be integrated in financial satisfaction of investors ^[75][76][93,94] and any other involved stakeholders ^[77][95].