Green Finance

Green finance (sometimes used interchangeably with sustainable finance) is the mobilisation of capital towards projects and activities that deliver environmental benefits, such as cutting greenhouse gas (GHG) emissions, protecting biodiversity and supporting the transition to a low-carbon economy. It covers both public and private money channelled through instruments such as green bonds, sustainability-linked loans and grants.

Why green finance matters

The investment gap to meet the Paris Agreement goals is large. The United Nations Environment Programme and the International Energy Agency have repeatedly stressed that clean-energy investment must rise sharply this decade. Green finance is the mechanism that redirects savings and lending towards wind and solar farms, energy-efficient buildings, clean mobility and nature-based solutions, while creating jobs and new markets in the process.

Key green finance instruments

Green bonds

Green bonds are debt instruments whose proceeds are earmarked exclusively for green projects. The labelled sustainable debt market has grown quickly: according to the Climate Bonds Initiative, cumulative aligned green, social, sustainability and sustainability-linked (GSS+) issuance passed 6 trillion US dollars during 2025, with green bonds the largest single category. See our entry on green bonds for detail.

The EU Green Bond Standard

To fight greenwashing in this market, the EU created a voluntary European Green Bond Standard (Regulation (EU) 2023/2631), which has applied since December 2024. Issuers using the "EU Green Bond" label must allocate proceeds to activities aligned with the EU Taxonomy and submit to external review by reviewers registered with ESMA.

Sustainability-linked loans and grants

In a sustainability-linked loan the interest rate is tied to the borrower meeting environmental targets, for example a defined cut in carbon footprint. Governments and bodies such as Spain's MITECO also provide grants and incentives for decarbonisation and renewable energy.

The EU rulebook

• EU Taxonomy: a classification of which economic activities count as environmentally sustainable. A 2026 simplification introduced a materiality threshold and cut the number of reporting data points to ease the administrative burden.
• SFDR: the Sustainable Finance Disclosure Regulation, which governs how funds disclose sustainability characteristics. A major revision ("SFDR 2.0"), proposed in November 2025, would move from the current Article 8 and 9 labels to clear product categories.
• European Green Deal: the overarching policy framework these tools serve.

Benefits and challenges

For companies, green finance can lower the cost of capital, open access to sustainability-minded investors and support regulatory compliance. The main challenges are the risk of greenwashing, the cost and complexity of disclosure, and limited access for smaller firms that lack reporting capacity. Reliable emissions and impact data are the foundation that makes any green finance claim credible.

At Manglai we help companies measure their carbon footprint and prepare the environmental data that lenders, investors and regulators increasingly require. Discover how Manglai can help you.