2.2. Expanding to other instruments and broader impacts

Following the success of green bonds, academic research expanded to explore a variety of other green finance instruments. These included sustainability-linked bonds, green loans, and sustainability-linked loans, each with unique characteristics and potential impacts on environmental sustainability.

Fatica et al. (2021) delved into sustainability-linked bonds, a newer form of green finance instruments. Unlike green bonds, which are earmarked for specific projects, sustainability-linked bonds are general-purpose bonds with financial terms tied to the issuer’s achievement of sustainability targets. Fatica et al.’s research demonstrated how these bonds create direct financial incentives for companies to improve their environmental performance, representing an innovative approach to align corporate financing with broader sustainability goals.

In the realm of green loans, studies by the Loan Market Association shed light on their increasing use in financing environmentally beneficial projects. These loans, similar to green bonds, adhere to principles ensuring that the funds are utilized for intended green purposes. The research highlighted the role of green loans in promoting sustainable practices among borrowers, incentivizing them to engage in projects with clear environmental benefits.

Further, the research also explored the impact of green finance on various sectors of the economy. Studies examined how green finance was influencing industries such as renewable energy, sustainable agriculture, and green real estate. These investigations provided insights into how green finance was facilitating transitions to low-carbon, sustainable business models across different sectors.