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Sustainable Finance: Tools, Effectiveness, and Challenges

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  • Caroline Flammer

Abstract

This article provides an overview of recent research on sustainable finance, focusing on the effectiveness, limitations, and challenges of key instruments used in green finance, biodiversity finance, blended finance, and impact investing. Drawing on empirical evidence and conceptual frameworks, this article highlights how these tools can contribute to environmental and social goals. It also examines the role of shareholders and corporate practices in advancing sustainability. In addition, this article discusses the Asian context, where institutional and economic conditions can create distinct opportunities and challenges for sustainable finance. Finally, the article concludes by emphasizing the need for interdisciplinary research given the complex nature of sustainability challenges. JEL Classification: G30, G32, M14, Q01, Q56

Suggested Citation

  • Caroline Flammer, 2026. "Sustainable Finance: Tools, Effectiveness, and Challenges," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 14-19, January.
    • Handle: RePEc:bla:asiapr:v:21:y:2026:i:1:p:14-19
    DOI: 10.1111/aepr.70007
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    References listed on IDEAS

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    1. Caroline Flammer & Ioannis Ioannou, 2021. "Strategic management during the financial crisis: How firms adjust their strategic investments in response to credit market disruptions," Strategic Management Journal, Wiley Blackwell, vol. 42(7), pages 1275-1298, July.
    2. Caroline Flammer & Bryan Hong & Dylan Minor, 2019. "Corporate governance and the rise of integrating corporate social responsibility criteria in executive compensation: Effectiveness and implications for firm outcomes," Strategic Management Journal, Wiley Blackwell, vol. 40(7), pages 1097-1122, July.
    3. Hart, Oliver & Zingales, Luigi, 2017. "Companies Should Maximize Shareholder Welfare Not Market Value," Journal of Law, Finance, and Accounting, now publishers, vol. 2(2), pages 247-275, November.
    4. Zerbib, Olivier David, 2019. "The effect of pro-environmental preferences on bond prices: Evidence from green bonds," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 39-60.
    5. Caroline Flammer & Aleksandra Kacperczyk, 2019. "Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine," Strategic Management Journal, Wiley Blackwell, vol. 40(8), pages 1243-1267, August.
    6. Xintong Zhan & Junting Liu & Jie Cao & Ruijing Yang & Linyu Zhou, 2026. "Beyond Green: Impacts of Green Bond Issuance on Conventional Bonds in China," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 72-82, January.
    7. Caroline Flammer, 2018. "Competing for government procurement contracts: The role of corporate social responsibility," Strategic Management Journal, Wiley Blackwell, vol. 39(5), pages 1299-1324, May.
    8. Caroline Flammer & Jiao Luo, 2017. "Corporate social responsibility as an employee governance tool: Evidence from a quasi-experiment," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 163-183, February.
    9. Seiwan Kim & Resi Ong Olivares & Donghyun Park & Shu (Grace) Tian & Sunjoo Yang, 2026. "How Sovereign Sustainable Bond Issuance Shakes Up the Corporate Sustainable Bond Market?: Evidence From Asian Markets," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 57-67, January.
    10. Caroline Flammer & Aleksandra Kacperczyk, 2016. "The Impact of Stakeholder Orientation on Innovation: Evidence from a Natural Experiment," Management Science, INFORMS, vol. 62(7), pages 1982-2001, July.
    11. Hart, Oliver D. & Zingales, Luigi, 2017. "Companies Should Maximize Shareholder Welfare Not Market Value," Working Papers 267, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    12. Caroline Flammer, 2015. "Does product market competition foster corporate social responsibility? Evidence from trade liberalization," Strategic Management Journal, Wiley Blackwell, vol. 36(10), pages 1469-1485, October.
    13. Dursun-de Neef, Ozlem & Ongena, Steven & Tsonkova, Gergana, 2022. "Green versus sustainable loans: The impact on firms' ESG performance," CEPR Discussion Papers 17430, Centre for Economic Policy Research.
    14. Caroline Flammer, 2015. "Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach," Management Science, INFORMS, vol. 61(11), pages 2549-2568, November.
    15. Caroline Flammer, 2023. "Green bonds and carbon emissions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(4), pages 752-764.
    16. Laura T. Starks, 2023. "Presidential Address: Sustainable Finance and ESG Issues—Value versus Values," Journal of Finance, American Finance Association, vol. 78(4), pages 1837-1872, August.
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    Cited by:

    1. Seiwan Kim & Resi Ong Olivares & Donghyun Park & Shu (Grace) Tian & Sunjoo Yang, 2026. "How Sovereign Sustainable Bond Issuance Shakes Up the Corporate Sustainable Bond Market?: Evidence From Asian Markets," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 57-67, January.
    2. Ayako Yasuda, 2026. "Comment on “Sustainable Finance: Tools, Effectiveness, and Challenges”," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 20-21, January.
    3. Irene Monasterolo, 2026. "Comment on “How Sovereign Sustainable Bond Issuance Shakes Up the Corporate Sustainable Bond Market?: Evidence From Asian Markets”," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 70-71, January.
    4. Lloyd Kurtz, 2026. "Comment on “Sustainable Finance: Tools, Effectiveness, and Challenges”," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 22-23, January.
    5. Caroline Flammer & Takatoshi Ito & Kazumasa Iwata & Colin McKenzie & Shujiro Urata, 2026. "Sustainable Finance in Asia: Editors' Overview," Asian Economic Policy Review, Japan Center for Economic Research, vol. 21(1), pages 5-13, January.
    6. Choudhary, Shamsher & Ali, Amjad & Audi, Marc, 2026. "The Relations between Internal Controls, Corporate Governance, and the Credibility of Post-Issuance Disclosures of Green Finance: Evidence using Issuer-Level Panel Data," MPRA Paper 128864, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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