Reframing Capital Allocation, Risk and Accountability in Sustainable Finance

Author(s)	Mr. Muhammed Hasik P
Country	India
Abstract	The practice of sustainable finance, which incorporates environmental, social and governance (ESG) factors into financing and investment decisions, has grown from being a small practice into a major issue for regulators, investors and companies. In this theoretical article, recent scholarship is brought together in a three-layered framework: drivers (policy, preferences of investors and climate-related risk); mechanisms (risk pricing, capital allocation and stewardship); and outcomes (cost of capital, impact on real-economy and financial stability). It explores four lenses of theory (risk-based, preference-based, impact-based, and information-based) and demonstrates that they illuminate various aspects of observed behavior in the market. While the volume of labelled products is not the most important factor to convince the market of the credibility of sustainable finance, the quality of measurement is, according to the review. The main weaknesses are divergent ESG ratings, greenwashing risk and uncertain additionality. The article ends with recommendations for future research and implications for investors, corporate management and regulators, also among emerging economies, like India.
Keywords	Sustainable finance, ESG, Green bonds, Climate risk, Greenwashing, Responsible investing
Field	Business Administration
Published In	Volume 17, Issue 4, October-December 2026
Published On	2026-11-12

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