Sustainable Finance and Sustainable Development Goals: A Comparative Review of Tools, Gaps, and Governance Challenges

ABSTRACT
This paper critically examines the structural limitations of sustainable finance in advancing the sustainable development goals (SDGs), despite its exponential market growth. Through a thematic and comparative analysis of key instruments, including green bonds, ESG metrics, and regulatory frameworks, we identify three systemic tensions that undermine measurable impact: the instrument‐impact paradox, the standardization dilemma, and the governance‐capacity gap. Drawing on academic literature, policy reports, and case studies from the EU, Kenya, Rwanda, and Bangladesh, we develop an integrated conceptual framework to diagnose misalignments between financial instruments and SDG performance. The analysis reveals persistent barriers to verification, scalability and institutional readiness, particularly in low‐ and medium‐income countries. To address these challenges, we propose a reform pathway, reforming ESG toward impact‐based metrics, tailoring global standards to regional capacity, and investing in infrastructure for transparency and interdisciplinary implementation. This review contributes a theoretically grounded and empirically informed framework for future research and policy innovation aimed at transitioning sustainable finance from symbolic compliance to meaningful SDG delivery.