The thesis analyzes the development of the regulatory framework for sustainable finance, with a particular focus on its implications for banking, institutional investors, and the capital market. In recent years, the European Union has made significant regulatory achievements and has become a global leader in the field of sustainable finance regulation. One of the most notable regulations is the EU Taxonomy, which represents a structured system for classifying sustainable activities. The paper emphasizes the importance of incorporating environmental, social, and governance (ESG) factors into financial decisions as key determinants of the long-term sustainability of the economy. Special attention is given to challenges such as greenwashing, which hinders the development of sustainable finance, and the need for standardization in the application of sustainable practices. Banks must align their operations with ESG principles and play a key role in directing capital towards sustainable projects. The paper concludes that the further development of the regulatory framework will require increased cooperation among regulators and other stakeholders, as well as education for all stakeholders, to ensure the achievement of sustainable finance goals and the long-term success of this financing approach