The evolution of green finance literature reflects a maturing field characterized by both empirical evidence and theoretical debate. While existing studies affirm the potential of Green Finance, particularly in reducing emissions and supporting renewable energy, they also highlight ongoing challenges related to regulation, data transparency, and socio-political context. A more integrated, interdisciplinary, and region-specific approach is essential to ensure that green finance genuinely contributes to inclusive and sustainable development globally. This review employs a comprehensive literature synthesis methodology, incorporating peer-reviewed articles, policy reports, and bibliometric analyses published between 2018 and 2025. Analytical frameworks include thematic content analysis and comparative evaluation of empirical findings. The review is organized to first present the evolution and mechanisms of green finance, followed by an assessment of its impacts and challenges, concluding with policy recommendations and future research directions. Findings reveal the positive impact of green financial mechanisms on sustainable development practices. Innovative financial instruments such as green bonds and green loans are recognized as critical; their deployment faces barriers related to market maturity and policy frameworks. Study also reveals a need for integrated policy support, enhanced risk management, and stakeholder collaboration to optimize green finance strategies globally.