Over the past 40 years of reform and opening-up, China’s economy has increased by leaps and bounds, becoming the world’s second-largest economy since 2010. However, rapid economic growth has been built on the high energy consumption, high emissions, high pollution of the crude development method, which led to tightening resource constraints, ecological and environmental degradation of the problem of the date highlighted. According to the latest Environmental Performance Index Report (2020) released by Yale University and Columbia University, China’s Environmental Performance Index ranks 120th out of 180 countries, indicating that China’s environmental quality is still at the end of the scale from a global perspective, which is in strong contrast to its current status as the world’s second-largest economy country. How to reconcile the contradictions and conflicts between economic development and ecological environmental protection has become a major challenge for the government.
More than 80% of environmental pollutants are produced by enterprises, which have become the main producers of resource consumption and environmental pollution (Shen et al., 2012). As the main contributors to environmental pollution, enterprises have an inescapable responsibility for pollution control and should fulfill their responsibility and invest more in environmental protection. However, due to the negative externalities of environmental pollution, Chinese enterprises generally have the problem of the insufficient scale of green investment (Tang et al., 2013). Corporate pollution control investment is motivated by the need to satisfy legitimacy requirements and is a response to pressure from government environmental policies. In recent years, the Chinese government has also paid more attention to the protection and management of the resource environment and ecological environment, and in the reports of the 18th and 19th CPC National Congress, it has proposed to make efforts to promote green development and circular development, and in conjunction with the introduction of a series of policies and regulations such as Environmental Protection Law of the People’s Republic of China. In addition, the Chinese government has continued to promote environmental taxes, emissions trading, and public environmental monitoring systems. Implementation of green policy will inevitably affect the production and operation activities, environmental management, and environmental protection investment behavior of enterprises.
CSR is usually associated as an approach to integrate social and environmental aspects into corporate activities (Baumgartner et al., 2013). Studies have shown that CSR plays a crucial role in determining a company’s performance and significantly determines environmental strategy (Kraus S et al., 2020). Based on stakeholder theory, companies face pressure from organizational stakeholders, such as competitors, customers, workers, and governments, who demand that companies talk openly about social and environmental issues (Pekovic and Vogt, 2020), so companies will pay more attention to environmental governance and integrate environmental protection investment into the social responsibility fulfillment process. Does government implementation of green policy promote corporate environmental protection investment? What is the impact of CSR on corporate environmental protection investment? And how do both influence corporate environmental behavior from the perspective of the external policy environment and internal corporate strategy? It is of great theoretical and practical significance to study how government green policy and CSR fulfillment affect corporate environmental protection investment behavior, to enrich and deepen the study of corporate investment theory, optimize corporate investment structure, and reasonably allocate corporate environmental funds.
All aspects of firms’ investment decisions, including allocation of funds, choice of technology, and investment in pollution abatement equipment, are influenced by environmental policies (Gray and Shadhegian,1998; Farzin and Kort,2000). Institutional theory suggests that green policy generate regulatory pressure and that firms will not actively participate in environmental protection if the government does not enforce mandatory green policy, and that firms’ environmental protection investment is a response when faced with government green policy(Li and Shen,2008; Yuan and Geng,2010). Murovec et al. (2012) point out that the motivation for firms to make environmental protection investment is to meet environmental legality requirements, reduce the expected fines and frequency of regulation by regulators, and ultimately reduce the cost of environmental compliance for firms. The Porter hypothesis also suggests that green policy can lead to “innovation compensation effects” that help to improve environmental performance together with economic performance (Porter, 1991; Porter and Linde,1995). The analysis suggests that firms will expand their environmental protection investment when the intensity of green policy is within their reach, either to meet legitimacy requirements or as a means of “showing goodwill” to the government. However, as the intensity of environmental policies increases, the impact of green policy on firms’ environmental protection investment is likely to change. Li and Tao (2012) find that there is an optimal level of green policy intensity. Leiter et al. (2011) find that reasonable green policy intensity can increase firms’ environmental protection investment, but their impact diminishes over time. Green policy has a significant negative impact on firm investment when the costs that firms bear to comply with green policy are too high.
Existing research on the impact of corporate social responsibility on corporate environmental protection investment is mainly based on stakeholder theory. The development of enterprises cannot be separated from the participation of all stakeholders and so enterprises should shoulder not only their pecuniary responsibility but also social and environmental responsibility. First, corporate environmental protection investment helps improve corporate environmental performance, which is an effective micro-level solution to mitigate environmental concerns generated by corporate excessive resource exploitation and energy use (Tian et al., 2020). Second, a firm’s investment in environmental protection is a competitive strategy. Enhanced investment in environmental protection can reduce the potential cost of environmental discipline and increase the value of the company’s products. Active fulfillment of environmental responsibility will increase customer satisfaction, which will lead to a good market reputation for the company (Fuentes-Blasco et al., 2017). Third, by assuming environmental responsibility, enterprises can not only build a good corporate image and demonstrate sound business posture and financial strength (Li and He,2014) but also help to enhance the identification of internal and external stakeholders with the enterprise and create a good external environment for the long-term development of the enterprise.
In summary, although there is a large body of literature surrounding the relationship between green policy and corporate environmental protection investment, no consistent empirical findings have been obtained. Thus, It is necessary to classify green policy into different types so as to further investigate the differences in the impact of different types of green policy tools on corporate environmental investment. Research on corporate environmental protection investment has mainly focused on the role of the external policy environment, but less research has been conducted on the internal mechanisms by which environmental regulation affects corporate behavior, especially from the perspective of social responsibility. So it is necessary to incorporate government green policy and corporate social responsibility into the same framework to study corporate environmental protection investment to reflect the combination of proactive and reactive corporate environmental investment behavior. Due to the substantial differences in policies and regulations, market competition, and cultural environment in different regions of China, there are significant differences in the formulation and implementation of green policy by local governments and in the way companies fulfill their social responsibilities. It is needed to study the regional differences in the effects of green policy and corporate social responsibility on corporate environmental protection investment. The “visible hand” of the government is responsible for designing sound green policy, while the “invisible hand” of the market leads companies to survive and develop under policy regulation and gain competitiveness (Li and Tian,2016). Both the government and the market may have an important influence on the environmental protection investment behavior of firms. It is necessary to introduce the variable of market competition to study the influence of the “two hands” of the government and the market on the environmental protection investment of firms.
The study may contribute to the literature in three ways. First, this paper combines the external policy environment and the intra-company perspective to reveal the relationship between green policy, corporate social responsibility and corporate environmental protection investment. Second, this paper further classifies green policy and conducts a comparative study of the influence of different types of green policy tools on corporate environmental protection investment. The sample was also divided into different regions for comparative studies to further understand the regional differences in the impact of green policy and CSR on corporate environmental investment behavior. Finally, this paper examines the role of market competition in regulating the relationship between green policy and corporate environmental protection investment, analyze the impact on corporate environmental protection investment from the perspective of the “two hands” of government and market, and propose policy recommendations to promote the coordinated development of policy and market mechanisms.
The remaining parts of this paper are organized as follows: Section 2 provides the theoretical analysis and research hypothesis; Section 3 describes the quantitative analysis concerning (a) the sample selection and data sources, (b) the choice of the variables, (c) the econometric models; Section 4 sets out the empirical results and main findings; Section 5 consists of research conclusions and policy recommendations.