Given the increasingly prominent impact of global climate change, there is a growing focus on environmental protection worldwide. Significant improvement of the ecological environment necessitates not only strong end-of-pipe measures but also harnessing the enabling power of financial resources. Green finance not only facilitates redirecting financial resources from polluting to eco-friendly endeavors but also encourages the allocation of a substantial amount of social capital to green initiatives. Research by Li et al. (2018) and de Haas and Popov (2019) demonstrates that green finance, from a global standpoint, plays a significant role in promoting green innovation within enterprises[1, 2]. As the largest developing country in the world, China is in dire need of transitioning from its traditional development approach and establishing a green technological innovation system. However, China's environmental regulatory policies have overlooked the potential role of green finance in promoting high-quality green innovation essential for fostering environmentally sustainable development[3, 4].
Green finance refers to financial activities that support and promote environmental protection and sustainable development through various financial instruments and products. This type of financial activity is characterized by the integration of environmental and social responsibility into financial decision-making, with the main objective of taking environmental, social and governance (ESG) factors into account in financial activities in order to promote sustainable economic growth. Through capital guidance, risk management, incubation and innovation, information disclosure and policy support, green finance attempts to promote low-carbon, environmentally and socially responsible investment and financing for sustainable development. However, green finance involves a wide range of fields, mainly including green credit, green bonds, green insurance, carbon finance, etc., and it is difficult for us to explore the role of green finance in a comprehensive manner in all fields. The former China Banking Regulatory Commission (CBRC) formulated the Guidelines on Green Credit (hereinafter referred to as "the Guidelines") in 2012, which is the first domestic normative document dedicated to green credit. The Guidelines require banking financial institutions to promote green credit at a strategic level and effectively control environmental and social risks in credit business activities. Distinguishing from environmental regulatory policies characterized by administrative penalties, the Guidelines aim to guide green credit through the allocation of credit resources to restrict green innovation of enterprises and promote green transformation of the economy, which also provides a good perspective for us to analyze the role of green finance from the perspective of green credit. According to the estimation of Societe Generale Research, the balance of green credit accounts for more than 90% of the balance of all green financing. As of the first half of 2023, the green credit balance of China's 21 major banks reached 25 trillion yuan, up 33% year-on-year, ranking first in the world in terms of scale. In the same period, the balance of green bonds in China was only RMB 1.98 trillion, less than 8% of the scale of green credit, and the scale of other green financing methods was even smaller. Therefore, we believe that the findings based on green credit can represent the role of green finance to a large extent. Thus, we take the Guidelines issued by the former CBRC as the entry point and use the DID method to assess the implementation effect of GCP. Specifically, considering that the Guidelines are committed to guiding the flow of funds to environmentally friendly and sustainable projects, promoting the green transformation of the economy, and preventing environmental and social risks, this paper tries to analyze the micro impact of the GCP from the perspective of the quality of green innovation.
Currently, two contrasting perspectives have surfaced from research on the influence of green finance on green innovation. One viewpoint suggests that green finance facilitates increased corporate R&D spending[5], enhances the effectiveness of green innovation within enterprises[6], and leads to high-quality enterprise development. Simultaneously, it can reduce corporate agency costs, improve investment efficiency, and act as credit restraints to drive green innovation among heavily polluting industries, thereby enhancing corporate environmental performance[4] and firms' green innovation performance[7]. On the other hand, an alternative perspective implies that green finance may aggravate the financing constraint faced by heavily polluting industries[8], raising the cost of credit financing for enterprises[9] and impeding green innovation.. Specifically, the impact of green finance on the green innovation behavior of listed companies is detrimental, particularly in hindering corporate credit financing, particularly with regards to long-term borrowing[10]. Additionally, green finance may intensify financial regulation challenges and diminish the effectiveness of financial services, thereby undermining the promotion of environmentally-friendly practices within the corporate sector[11]. However, as China’s economic development shifts from "quantitative increase" to "qualitative improvement", the value of patents is no longer sufficient to reflect the innovation level of enterprises; rather, it highlights the degree of significance that enterprises place on green innovation.
We employed the “Green Credit Guidelines” (GCP), introduced in China in 2012, as a quasi-natural experiment to investigate the influence of green credit policies on the green innovation of firms subject to green credit restrictions. To identify whether a listed company falls within a green credit-restricted industry, we ascertained the company's industry based on the presence of environmental and social risks classified as Category A in the Key Evaluation Indicators for Green Credit Implementation. If a listed company is associated with an industry falling under Category A, it is recognized as a green credit-restricted industry; otherwise, it is classified as a non-green credit-restricted industry. We created an interaction term involving the policy time dummy variable and the grouping dummy variable as the principal explanatory variable. This variable primarily assesses the impact of GCP on the green innovation of firms subject to green credit restrictions and those that are not, both before and after the implementation of GCP. It is important to note that current methods for measuring enterprise green innovation are somewhat limited, making it challenging to fully capture the diverse nature of corporate environmental improvement. To date, existing studies have mainly measured corporate green innovation through metrics such as the quantity of green patents[4, 12], As China's economy transitions from quantity-driven growth to a focus on qualitative enhancements, the emphasis is no longer solely on the sheer volume of patents, but rather on the significance of enterprises' commitment to green innovation. To address this shift, we have utilized the WIPO Green Patent List's patent classification system, and applied the knowledge breadth method to assess the quality of enterprises' green patents. By doing so, we aim to gauge the extent of green innovation within these enterprises, thereby addressing the limitations of relying solely on patent numbers to measure innovation activities. This approach ultimately yields a more accurate reflection of enterprises' achievement in the realm of green innovation.
After establishing the indicators mentioned above, we discovered that the GCP has a substantial impact on driving green innovation within green credit-constrained enterprises. This finding remains robust even after addressing several potential endogeneity issues and conducting thorough tests to validate the results. The findings of the impact mechanism test indicate that green credit effectively curbs corporate shadow banking and leads to spillover effects in digital technology, thereby facilitating the transformation of corporations towards green practices. Simultaneously, green credit also enhances the total factor productivity of enterprises, which in turn supports and encourages the transition towards greener operations.
Meanwhile, the existing literature often overlooks the influence of FinTech in examining how green finance facilitates entities' transition to sustainable practices. In the interconnected landscape of green finance and green technology innovation, FinTech has the potential to enhance the supportive role of green finance in empowering entities. Findings from this study indicate that FinTech can notably bolster green credit's efficacy in promoting the greening of enterprises. However, the implementation of green credit may also add complexity to financial institutions' portfolios and pose challenges to regulatory oversight, leading to increased difficulties in financial regulation. This paper also explores the moderating impact of financial regulation on these dynamics[11]. In order to enhance the precision of the regression results, we adjusted the financial regulation index to the city level based on the concentration of urban commercial banks, given that the financial regulation data are currently only available at the provincial level. The findings of this study indicate that financial regulation reinforces the positive impact of fintech. Concurrently, the enhancement of the intellectual property protection system has been shown to bolster enterprises' innovation capabilities, thereby facilitating technological advancements and industrial upgrades, and effectively mitigating the constraints related to R&D investment and innovation risks[13]. Furthermore, this paper explores the influence of the IPR protection system and establishes its role in bolstering green innovation within firms that are both enabled and constrained by green credit.
In conclusion, this paper makes a meaningful contribution in three primary areas. Firstly, it provides a fresh perspective on green finance for promoting high-quality development of green innovation. Instead of solely relying on the quantity of green patent applications or authorizations, as commonly done in existing studies, this paper introduces the knowledge breadth approach to assess the quality of corporate green innovation. This method ensures a more objective and accurate measurement, important for China's progression towards high-quality development. The second contribution lies in the comprehensive examination of the impact mechanism of green credit on enterprise green innovation. In light of China's policies aimed at digitization and innovation, this paper scrutinizes the influence of green credit through the lenses of commercial credit, digital technological innovation, and total factor productivity. Lastly, this paper addresses the often overlooked impact of financial technology and regulation in studies related to green finance and entity greening transformation. By introducing city-level fintech and financial regulation indicators, the study explores how these factors can strengthen the role of green finance in promoting entity green innovation. This innovative approach adds depth to our understanding of the factors affecting the quality of green innovation in firms.
The paper is structured as follows: the second part comprises the theoretical analysis and research hypotheses. The third and fourth parts detail the research design and the analysis of empirical results, respectively. The fifth part explores the impact mechanism, followed by the sixth part, which presents further discussion. The final section contains the conclusions and suggestions for countermeasures.