Green finance for sustainable development: analyzing the effects of green credit on high-polluting firms’ environmental performance

Abstract This study empirically evaluates the environmental impact of China’s 2012 Green Credit Guidelines on high-polluting firms, utilizing a panel dataset of A-share listed companies spanning 2006–2022. Applying a Difference-in-Differences (DID) framework, the analysis employs Bloomberg’s ESG environmental score—which comprehensively captures resource efficiency, pollution abatement, and ecological conservation—as a proxy for environmental performance. The findings reveal a statistically significant improvement of 2.3–3.7 points in environmental scores attributable to the policy intervention. According to Bloomberg’s calibration, this improvement corresponds to an estimated annual reduction of 1.2–1.8 million tons of SO₂ emissions, representing 15–22% of China’s mid-term (2020–2025) pollution abatement targets. Robustness checks, including Propensity Score Matching (PSM), placebo tests, and alternative measurements, validate the results. The paper identifies two key mechanisms through which green credit policies affect environmental performance: financing constraints and innovation compensation. Heterogeneity analysis shows that firms in eastern regions, competitive industries, and state-owned enterprises (SOEs) experience greater impacts. This paper contributes to the global discourse on sustainable development, offering evidence of how green credit policies can improve high-polluting firms’ environmental performance based on their region, industry and ownership, and providing recommendations for supporting the transition to a greener economy.