Do Low-Carbon City Pilots Promote Corporate Environmental Investment? Evidence from China

As a pivotal instrument for fostering sustainable development and climate goals, low-carbon city pilot policies (LCCPs) motivate firms to increase environmental investments, thereby harmonizing economic growth with emission reduction. This study employs a difference-in-differences (DID) design to empirically investigate the effects and underlying mechanisms of LCCPs on firms’ environmental investment in China. The results demonstrate that LCCPs lead to a significant increase in corporate environmental investment of approximately 36.5% (with a core coefficient of 0.365, significant at the 1% level) when compared to non-pilot cities. This impact primarily occurs through five channels: technology transformation, environmental regulation compliance, financial support, talent attraction, and policy alignment. Heterogeneity tests further reveal that the effect is stronger for enterprises in the eastern and western regions, non-entrepreneurial boards and non-financial entities, larger firms, and those facing financing constraints and operating in low-industry competitive environments. This study offers evidence for the importance of LCCPs in driving corporate environmental investments, providing valuable policy implications for enhancing regulatory frameworks and fostering green innovation to support carbon neutrality and sustainable economic transitions.