In an era of accelerating climate crises and dynamic financial shifts, innovative digital solutions are crucial for transforming sustainable urban development. This study introduces a rigorous framework that synergizes blockchain and artificial intelligence (AI) to revolutionize sustainable finance. By leveraging blockchain’s immutable ledger for tracking carbon credits and green bonds, the proposed system ensures transparency and effectively mitigates greenwashing. Concurrently, AI-driven reinforcement learning models dynamically adjust carbon pricing and optimize investment allocations using real-time emissions data. Validation through a digital twin simulation of an urban environment reveals tangible performance gains: a 41.89% reduction in transaction gas fees, a 30.12% acceleration in return on investment, and a 22.00% decrease in emission variability. Additionally, regulatory compliance improved to 92% in the simulated AI-optimized scenario. Policy recommendations are provided to facilitate the adoption of standardized reporting frameworks and adaptive regulatory measures, ensuring scalability and long-term impact. This integrative approach not only offers a transformative pathway for urban decarbonization but also establishes a new benchmark for data-driven decision-making in sustainable finance.