How green credit policies drive green innovation: evidence from a natural experiment in China

This study investigates the impact of Green Credit Guidelines (GCG) on green innovation, with a particular focus on heavily polluting firms. Using panel data of Chinese A-share listed firms, the findings reveal a nuanced effect: while green credit policies increased green patent applications by 18.28 % for environmental protection firms, they significantly reduced green patent output among heavily polluting firms, including a 8.11 % decline in green patents. Further heterogeneity analysis shows that the inhibitory effects are more pronounced among private firms and those operating in high-competition industries. Mechanism analysis indicates that this decline is primarily driven by a conservative strategy, where polluting firms, perceiving their disadvantaged status in green credit assessments, reduce R&D investments. This mechanism accounts for 21 % of the total effects. These findings underscore the unintended consequences of green credit policies and highlight the need for tailored frameworks that balance environmental protection goals with the promotion of innovation across diverse firm types. Policymakers should consider targeted support for heavily polluting firms to facilitate their transition to green technologies and mitigate financing constraints, ensuring the dual objectives of environmental sustainability and innovation are achieved effectively.