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Green Financial Innovations and Climate Risk Management: The Role of Green Bonds, ESG, and Sustainable Finance in Shaping Financial Markets

Green Financial Innovations and Climate Risk Management: The Role of Green Bonds, ESG, and Sustainable Finance in Shaping Financial Markets
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Author(s): P. A. Manisha (Dayananda Sagar College of Engineering, India)and H. P. Ramya (Dayananda Sagar College of Engineering, India)
Copyright: 2026
Pages: 38
Source title: Impacts of Climate Risk and Energy Consumption on Financial Markets
Source Author(s)/Editor(s): Abdelkader Mohamed Sghaier Derbali (Taibah University, Saudi Arabia)
DOI: 10.4018/979-8-3373-6766-8.ch007

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Abstract

The accelerating impacts of climate change are reshaping global financial markets, driving the need for innovative tools to manage climate risk and mobilize capital for sustainable growth. Green financial innovations—particularly green bonds, Environmental, Social, and Governance (ESG) investing, and broader sustainable finance mechanisms—have emerged as key instruments linking financial performance with climate resilience. Green bonds channel capital into renewable energy, and low-carbon infrastructure, while ESG frameworks guide investors in assessing both financial and environmental risks. At the systemic level, sustainable finance is reinforced by policy initiatives such as the EU Taxonomy, pushing markets toward transparency and accountability. Yet, challenges such as greenwashing, inconsistent ESG metrics, and limited accessibility in emerging markets persist. This chapter examines the evolution, opportunities, and limitations of these innovations, emphasizing their potential to transform financial markets into drivers of the energy transition and climate risk management.

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