The Legal Framework of Sustainable Finance in Capital Markets: ESG Integration and Regulatory Perspectives

Sovilj, Ranko (2026) The Legal Framework of Sustainable Finance in Capital Markets: ESG Integration and Regulatory Perspectives. In: Challenges and Perspectives of the Development of Legal Systems in the XXI Century. University of Banja Luka – Faculty of Law, Banja Luka, pp. 109-110. ISBN 2831-1361

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Abstract

This paper examines the central role of capital markets in mobilizing fi­ nancial resources necessary for the achievement of sustainable development objectives. The aim of this research is to analyze the legal and regulatory dimensions of sustainable finance within capital markets, with particular emphasis on the integration of ESG criteria and the role of public policy in shaping investment practices. It argues that sustainable finance, understood as a framework encompassing diverse financial instruments and strategies, has increasingly relied on capital markets as the primary mechanism for channel­ ing capital toward sustainability-enhan cing investments. Particular attention is devoted to the rise of environmental, social, and governance criteria as a unifying concept through which sustainability considerations are integrated into investment decision-making, generating value both for investors and for society as a whole. The analysis further explores the regulatory implications of the growing prominence of ESG investing, especiallyin light of the expanding influence of institutional investors and the evolving expectations regarding the alignment of profit-generation with broader social welfare goals. Finally, the paper addresses the question of the appropriate role of the state in shap­ ing sustainable finance. It considers the dual capacity of governments as both regulators and active participants in capital markets, and evaluates the po­ tential policy combinations available to them. The paper concludes that the future development of sustainable finance will depend on the careful calibra­ tion of regulatory frameworks and market incentives to ensure both financial efficiency and the advancement of sustainability objectives.

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