The impact of green credit guidelines on green lending and environmental outcomes: Evidence from Chinese banks

In line with global trends, China introduced the Green Credit Guidelines (GCGs) in 2012 to promote green lending and advance environmental protection. This study shifts the analytical focus from borrowing firms, the primary subject of prior research, to lending institutions and examines how banks have responded to the GCGs. Using panel data from 34 A-share listed Chinese banks between 2008 and 2020, we find a general increase in green lending following the implementation of the GCGs. However, this growth is predominantly driven by state-controlled banks, suggesting that institutional constraints limit broader industry uptake. Further analysis reveals that state-controlled banks benefit financially from green lending post-GCGs and the regions with better GCG implementation experience a decrease in pollution emission levels. Our findings support both institutional theory and relationship banking theory, highlighting the perspectives of the lending institutions and the shortcomings of the current GCGs. To enhance the effectiveness of GCGs, we recommend that the GCGs be supplemented with mechanisms that promote practices across the banking sector.