<p>As global financial systems align with climate goals, enhancing Carbon Literacy is essential to mobilize retail investment for sustainable development. However, retail investors’ participation in low-carbon investments remains limited, and the behavioral mechanisms linking Carbon Literacy to Sustainable Investment Decisions remain underexplored. This study examines the influence of Carbon Literacy on Sustainable Investment Decisions, focusing on the mediating role of Green Investment Efficacy and the moderating role of Green Trust. Data were gathered from a sample of 428 Indian retail investors using a structured questionnaire. The measurement and structural models were assessed through a two-stage disjoint approach in Partial Least Squares Structural Equation Modeling (PLS-SEM) to validate Carbon Literacy as a reflective–formative higher-order construct and test the proposed hypotheses. The results indicate that Carbon Literacy positively influences Sustainable Investment Decisions. Further, Green Investment Efficacy mediates this relationship, suggesting that Carbon Literacy translates into sustainable investment behavior through investors’ beliefs and confidence in generating positive financial and environmental outcomes. Furthermore, Green Trust moderates the effect of Green Investment Efficacy on Sustainable Investment Decisions, highlighting the role of trust in strengthening investor confidence in sustainable finance. The study advances sustainable finance literature by conceptualizing Carbon Literacy as a multidimensional higher-order construct and by integrating efficacy and trust-based mechanisms within the TPB framework to explain Sustainable Investment Decisions. It offers practical insights for policymakers, financial institutions, and regulators to foster investor trust, improve ESG credibility, and promote India’s transition toward a low-carbon economy aligned with the Sustainable Development Goals (SDGs).</p>