The accelerating urgency of climate change has intensified scholarly and policy interest in the capacity of financial systems to support a low-carbon transition. Green finance has emerged as a central mechanism through which capital markets, banking institutions, and public policy frameworks are mobilized to address environmental externalities while maintaining economic competitiveness. This article offers an in-depth, theory-driven and empirically grounded examination of green bonds, green credit, and broader green finance instruments, drawing exclusively on the provided body of literature. The study seeks to synthesize fragmented research streams into a coherent analytical framework that explains how green financial instruments influence industrial transformation, corporate environmental innovation, urban sustainability, and macro-level investment dynamics. By integrating perspectives from sustainable finance, environmental economics, and climate policy, the article explores the structural drivers of green finance growth, the role of environmental policy strength, and the interaction between public and private capital in reducing investment risks associated with low-carbon projects. Methodologically, the research adopts a qualitative integrative review and conceptual synthesis approach, enabling a deep exploration of causal mechanisms, institutional constraints, and policy alignment challenges. The findings highlight that green bonds and green credit policies do more than reallocate capital; they reshape corporate incentives, influence compliance behavior, and facilitate long-term structural change, particularly in emerging and developing economies. At the same time, the analysis identifies persistent challenges related to market integration, liquidity, regulatory credibility, and uneven global diffusion. The article contributes to the literature by offering a comprehensive theoretical interpretation of green finance as a systemic transformation tool rather than a niche financial innovation. It concludes by outlining future research directions and policy implications for aligning financial systems with climate goals in an era of escalating environmental risk.

Green finance, green bonds, climate policy alignment

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