Green Growth and Sustainable Finance: A Narrative Review of Economic Evidence and Policy Pathways

Abstract

The search for economic growth that is still viable environmentally has reignited the applicability of the concepts of green growth and sustainable finance. Both have been prominently featured in policy debates, but their economic bases and their effectiveness are still questioned. This narrative review summarizes the literature of environmental and financial economics to assess how environmental policy, innovation, and financial mechanisms together influence growth outcomes and transition pathways. The review is structured around four themes, the conceptualization and measurement of green growth; the relationship between environmental policy, innovation, and economic performance, the role of sustainable finance in reallocating capital; and the implications of climate, related financial risks for governance and stability. Green growth, according to the evidence, hinges on measurement frameworks that are based on wealth and well, designed environmental policies that redirect technological change without causing a decline in productivity. Sustainable finance may play a role in these developments by reducing the financing costs and making the risk pricing more efficient, yet its effect is still very limited in the absence of policy signals, disclosure, and governance. The financial risks associated with climate change reinforce the argument for embedding sustainable finance operations within macro, financial oversight. The review, in general, conveys that green growth is a real option but it will not happen automatically. It calls for a coordinated policy pathway that aligns regulation, innovation, and finance while at the same time managing trade-offs and systemic risks.