Financing The Green Transition: Challenges And Opportunities In Sustainable Investment

Abstract

The transition to a low-carbon global economy requires an estimated multi-trillion-dollar reallocation of capital toward renewable energy, clean technology, and climate-resilient infrastructure, yet the flow of private capital into sustainable investment vehicles remains constrained by informational, regulatory, and behavioral frictions. This study investigates the challenges and opportunities shaping the financing of the green transition, examining the determinants of investor willingness to allocate capital to sustainable investment instruments such as green bonds, ESG-themed funds, and renewable energy project finance. Anchored in Behavioral Finance Theory, Stakeholder Theory, and Signalling Theory, the study proposes and tests a structural model in which Green Financial Literacy, Policy and Regulatory Support, and ESG Disclosure Quality influence Sustainable Investment Decisions, with Investor Trust and Perceived Financial Risk serving as mediating mechanisms. Primary data were collected from a sample of 410 institutional and retail investors, financial analysts, and portfolio managers, selected through a stratified random sampling technique, using a structured questionnaire administered via a five-point Likert scale. The sample size was derived using Cochran's formula for large populations, adjusted for anticipated non-response. Data were analyzed using IBM SPSS Statistics v28 for descriptive and preliminary diagnostics, and SmartPLS 4 for Partial Least Squares Structural Equation Modelling (PLS-SEM), including measurement model assessment, bootstrapped mediation testing (5,000 resamples), and importance-performance map analysis (IPMA). Results reveal that ESG Disclosure Quality and Policy and Regulatory Support exert the strongest positive effects on Sustainable Investment Decisions, while Perceived Financial Risk, driven substantially by greenwashing concerns and regulatory uncertainty, exerts a significant negative effect that is partially offset by Investor Trust. The measurement model demonstrated satisfactory convergent and discriminant validity (AVE > 0.50; HTMT < 0.85), and the structural model achieved acceptable predictive relevance (Q2 > 0). The findings offer actionable insights for policymakers, financial institutions, and corporate issuers seeking to mobilize private capital at the scale required to finance the global green transition.