1. Introduction

The global financial market increasingly recognizes that long-term economic resilience cannot exist independently of ecological health. Traditional finance often places greater emphasis on short-term profit maximization and underestimates environmental impacts such as greenhouse gas emissions, biodiversity loss, or water pollution. In contrast, green finance strives to integrate environmental protection concepts into all aspects of capital allocation, taking these external influences into account, so that financed projects can deliver measurable ecological benefits while generating financial returns. Over the past decade, green finance has grown from a niche concept advocated by pioneering development banks and governments to a mainstream market encompassing a variety of tools. At the heart of this evolution lies green bonds—debt securities whose funds are explicitly earmarked for environmentally beneficial projects—and impact investments, which offer competitive financial returns while also delivering quantifiable social and environmental outcomes [1]. This article adopts a mixed-methods research approach to assess the financial, environmental, and social performance of green bonds and impact investments from 2015 to 2024 in response to the aforementioned gaps. Quantitative analysis examined issuance volume, yield, and price differentials (i.e., the “green premium”), while a series of qualitative case studies highlighted best practices, governance structures, and stakeholder perspectives. Through this comprehensive analysis, this study aims to answer three fundamental questions: (1) How have green bonds and impact investment vehicles evolved and developed? What are their financial and environmental achievements? (2) what are the barriers and market failures that have hindered their widespread application? (3) what policy interventions and industry practices can most effectively expand the scale of green finance and make it a catalyst for sustainable development? The following structure of this article is: the second part reviews the existing literature on green finance, green bonds and impact investing; the third part describes the mixed method research; the fourth part presents the results of the quantitative analysis and the findings of the case study; the fifth part summarizes the main insights, policy recommendations and future research directions.

2. Literature review

2.1. Overview of green finance

Green finance represents a fundamental transformation of the capital market, shifting investment decisions from a short-term, profit-driven approach to a long-term perspective that internalizes environmental management considerations (see Figure 1). As Figure 1 shows, investors first make capital allocation choices and then fully integrate ESG (environmental, social, and governance) standards into these decisions, enabling them to move toward a long-term sustainable investment commitment. The foundation of green finance lies in integrating environmental impacts such as carbon emissions and ecosystem degradation into the project cost structure to ensure that financial returns are consistent with measurable ecological benefits. Initially fueled by a few development banks and forward-looking governments, green finance has now grown into a trillion-dollar market. In practice, it covers a variety of tools: green loans require borrowers to allocate funds specifically to projects that are beneficial to the environment; the sustainability linkage tool establishes a direct link between the borrower’s cost of capital and pre-established environmental performance targets [2]. In addition to debt instruments, green finance also includes equity financing for green technology startups—that is, providing growth capital to companies developing renewable energy solutions or clean water technologies—as well as hybrid financing methods that combine concessional public funds with private capital. Risk-sharing mechanisms, such as guarantees or priority loss protection, have further reduced investor exposure to new green fields and encouraged broader participation.

2.2. Green bonds and their function

Green bonds originated in 2007 when a development bank issued the first bonds specifically labeled to raise funds for renewable energy projects. Since then, their financing scope has steadily expanded, covering a variety of projects such as energy-efficient buildings, clean transportation, and water treatment facilities [3]. Functionally, green bonds differ in two ways from traditional bonds: first, all funds raised by the bonds must be invested in projects that meet established environmental protection standards; second, the issuer must track and verify the bond's environmental benefits during its term, as needed, and fulfill information disclosure requirements. To maintain transparency and credibility, issuers often follow voluntary guidance documents, such as preparing annual reports on the impact of green bonds. So far, the green bond market has diversified: from national governments and municipal institutions to companies in sectors such as utilities, automotive manufacturing, and telecommunications, all rely on green bonds to attract the growing number of environmentally conscious investors. Conversely, investors view green bonds as a stable store of value and are confident that their capital will not be used to encourage resource-intensive or polluting activities [4].

2.3. Impact investment and how it works

The difference between impact investing and traditional philanthropy is that investors not only expect measurable social or environmental returns, but also seek economic gains from capital. Charities typically manifest as one-way donations to nonprofit organizations, while impact investing seeks one-way relationships: investors provide capital to companies or funds that can create positive change and generate revenue or profits at the same time. Common approaches include specialized mutual funds, venture capital funds that support social economy businesses, and direct investments in companies with sustainable business models. Investors will define specific metrics—such as the amount of carbon dioxide emissions avoided, the number of green jobs created, or the area of land reforested—and the investment management group will regularly report on these achievements to stakeholders. Unlike green bonds, which offer fixed interest rates, impact investments often include equity or variable-yield debt investments linked to the performance of underlying projects or portfolios [5]. This dual incentive encourages invested organizations to maximize social or environmental benefits while maintaining financial sustainability.

3. Methodology

3.1. Research design

This study adopts a mixed research method to comprehensively evaluate the role of green bonds and the impact of investment in achieving environmental goals. The quantitative part includes data collection on project emissions, rates of return, and performance indicators, while the qualitative part includes in-depth case analysis and stakeholder interviews. By verifying these two approaches, the research not only provides a quantitative evaluation of investment performance, but also deeply analyzes substantive factors such as governance structure, decision-making process, and investor motivation [6]. The research framework is divided into three steps: (1) mapping the global green bond issuance pattern and impact fund fund flow from 2015 to 2024; (2) conducting a financial analysis of the stratified sampled green bonds and impact funds to calculate their performance levels against benchmark indicators; (3) conduct case studies on reference projects in Europe, Asia and North America, summarize practical highlights, challenges encountered and lessons learned.

3.2. Data collection

Relevant data on green bonds were sourced from leading financial data providers, covering issuance volume, coupon rate, maturity, and credit rating. Data on impact investment capital flows were obtained through industry surveys, annual reports of impact funds, and non-profit research organizations focused on sustainable finance. The review of case projects considered three points: (a) having received financial support from green bonds or impact investment channels; (b) having clearly recorded environmental performance indicators (such as avoided carbon dioxide emissions); (c) covering different regions and industries (such as renewable energy, sustainable agriculture, and green infrastructure) [7]. In addition, semi-structured interviews were conducted with seventeen key figures, including fund managers, institutional investors, project developers, and regulators. The interview plan covered the logic of investment decisions, the assessment of environmental outcomes, and views on market barriers.

3.3. Analytical techniques

We use descriptive statistical methods to analyze quantitative data, which allows us to identify changing trends in issuance volume, average yield, and investor composition over time. Regression analysis is used to study the relationship between bond characteristics (such as maturity and issuer type) and price differences from traditional bonds. For impact funds, their performance is compared to standard stock indices to assess whether the impact investment portfolio can achieve competitive returns. Qualitative data from interviews and case studies were classified and organized thematically to extract in-depth insights into the governance structure, stakeholder participation, and impact of projects [8]. The narrative of each case study follows a fixed framework: project context, financing structure, performance results, challenges encountered, and feedback from all parties. This two-pronged analytical approach allows us to fully understand how green financial tools work, both in theory and in practice [9].

4. Results and discussion

4.1. Performance of green bonds

From 2015 to 2024, annual green bond issuance increased from approximately USD 100 billion to over USD 800 billion. Among these, sovereign green bonds issued by countries such as France, Poland, and Indonesia accounted for approximately 30% of the total, while municipal institutions and private companies accounted for the remaining share. Data analysis indicates that compared to ordinary bonds issued by the same issuer, green bonds generally carry a small premium—commonly referred to as the “green premium.” This premium is typically between 5 and 15 basis points, reflecting the strong market demand for fixed-income products with environmental labels. From a project perspective, projects that have received financing have demonstrated significant environmental benefits: for example, several wind farms financed by European green bonds have reduced a total of over 2 million tons of carbon dioxide emissions in the first three years of operation. In Asia, green bonds have supported the expansion of solar farms in India and battery energy storage facilities in South Korea, adding more than 4 gigawatts of renewable energy capacity to the two countries' power grids cumulatively. In terms of financial performance, the yield of green bonds is comparable to that of traditional bonds. This slightly lower yield is offset by stronger market liquidity and better issuer reputations [10 ].

As shown in Table 1, issuance volume increased nearly eightfold between 2015 and 2024, while the average green premium remained consistently within the 5-15 basis point range. The estimated carbon dioxide reduction clearly confirms the positive environmental impact of these projects.

4.2. Effect of investment on sustainable development

The total asset management scale of impact investment funds tracked at this stage exceeds US$250 billion. The key finding is that impact investment portfolios constructed strictly according to selection criteria typically have a rate of return that differs by less than 100 basis points from that of common stocks or fixed-income indices, while also providing measurable environmental or social benefits. Case studies have confirmed this synergy effect: a Southeast Asian clean stove manufacturer increased its production capacity from 10,000 units in 2016 to over 500,000 units by 2023 through multiple rounds of impact equity investments. This expansion has reduced carbon dioxide emissions by over 2.5 million tons per year, and investors have achieved an internal rate of return of 12% within seven years. Similarly, a Latin American sustainable agriculture fund supported cooperatives promoting regenerative agriculture, improving soil health on over 100,000 hectares of land, increasing average farm income by 20%, and reducing pesticide use by 60%. These results indicate that capital flows guided by impact metrics can effectively promote environmental improvement while achieving competitive financial returns.

Table 2 summarizes four representative impact funds, showing the differences in asset management (AUM) size, average annual rate of return, and carbon dioxide avoidance metrics across strategies and regions. It can be seen that their returns are essentially consistent with the baseline, while the environmental benefits are significant.

5. Conclusion

Green bonds and impact investing have become indispensable drivers for promoting sustainable finance. By 2024, they had attracted over USD 800 billion in funding annually, fully demonstrating that capital can not only generate competitive financial returns but also create significant environmental value. Wind farms, solar parks, and energy-efficient infrastructure projects financed by green bonds have avoided millions of tons of carbon dioxide emissions. In Southeast Asia, Latin America, Europe, and Africa, clean-cooking stove manufacturers and regenerative agricultural cooperatives supported by impact funds have successfully reduced emissions and improved livelihoods, with a rate of return not exceeding 100 benchmarks. However, to fully unlock the potential of green finance, four obstacles still need to be overcome: fragmented regulation leads to ambiguous definitions of “green” qualifications, inconsistent reporting standards encourage “greenwashing” behavior, insufficient institutional capacity makes it difficult to assess environmental performance in a timely manner, and there is a lack of sufficient investment in high-risk, early-stage green technologies. To this end, policymakers and industry participants should implement a unified classification standard to regulate the definition of “green,” require the use of transparent, third-party audited performance reporting, encourage institutional investors to acquire expertise in internal environmental risk assessment, and establish credit enhancement mechanisms to reduce risks in new clean technology areas. By implementing these measures and constantly innovating—especially in the context of the growing popularity of new tools such as sustainability-linked loans and transition bonds—green finance will gradually become a transformative force, guiding trillions of dollars towards sustainable development goals and building together a low-carbon and equitable future.