Can the green credit policy stimulate green innovation of heavily polluting enterprises in China?

Introduction: The requirement for more funds has been a significant challenge for China’s heavily polluting enterprises (HPEs) to embark on green innovation. Methods: This study takes China’s 2012 Green Credit Guidelines (GCGs) as a quasi-natural experiment to examine their effect on the quality and quantity of green innovation in HPEs. Using the data of Chinese listed companies from 2007 to 2020 and the difference-in-differences (DID) model. Results: We found that the Green Credit Guidelines could significantly improve the number of enterprises’ green innovation but not their quality. Discussion: As part of the potential solutions, this study proposes 1) the implementation of specific green fiscal policies to complement the existing green credit policies by the government, 2) a more comprehensive range of green financing products by financial institutions, and 3) the active development of funding from non-bank sources, such as venture capital or commercial credit.