The impact of green credit policy on the environmental performance of highly polluting enterprises: Empirical evidence from China

Introduction: The Effectiveness of Green Credit as a Global Governance Tool

Under the dual pressures of the climate crisis and sustainable development goals, green finance policies have become a core tool for global environmental governance. As one of the world's largest carbon emitters, China introduced the "Green Credit Guidelines" in 2012, aiming to channel capital from high-polluting industries to low-carbon sectors through financial leverage. However, whether such policies can genuinely improve corporate environmental performance remains a key question for both academia and policymakers.

Research Design and Core Findings

Based on panel data of Chinese A-share listed companies from 2006 to 2022, this study employs a difference-in-differences (DID) approach to evaluate the impact of the Green Credit Guidelines on the environmental performance of high-polluting firms. Environmental performance is measured using the Bloomberg ESG Environmental Score, which comprehensively reflects three dimensions: resource efficiency, pollution control, and ecological protection.

The study finds that the policy intervention significantly increased the environmental scores of high-polluting firms by 2.3 to 3.7 points. According to Bloomberg calibration, this improvement is equivalent to a reduction of 1.2 to 1.8 million tons of sulfur dioxide emissions per year, accounting for 15%–22% of China's medium-term (2020–2025) pollution reduction targets. This result remains robust after a series of checks, including propensity score matching, placebo tests, and alternative measurements.

Mechanisms: Financing Constraints and Innovation Offsets

The green credit policy affects corporate environmental performance through two pathways. First, the financing constraint mechanism: the policy tightens credit supply to high-polluting industries, forcing firms to improve their environmental performance in order to lower financing costs. Second, the innovation offset mechanism: to obtain green credit preferences, firms proactively increase investment in green technological innovation, thereby enhancing resource efficiency and emission reduction capacity. These two pathways together drive firms from passive compliance toward active green transformation.

Heterogeneity Analysis: Regional, Industry, and Ownership Differences

The policy effects exhibit significant heterogeneity. Firms in eastern regions show more pronounced environmental performance improvements due to developed financial markets and stronger regulatory enforcement. Firms in competitive industries face greater market pressure and are more inclined to gain competitive advantages through green innovation. State-owned enterprises, due to their close ties with the banking system, benefit more from the transmission of credit policies but also face stronger regulatory compliance requirements.

Global Implications: Pathways for Green Finance in Developing Countries

China's experience provides a referable green finance policy framework for countries in the Global South. Unlike the market-driven green finance systems of developed countries, China's policy intervention model combines administrative directives with market incentives, achieving significant environmental improvements in the short term. However, the study also suggests that policies should pay attention to regional development imbalances and the differentiated responses of various types of firms, avoiding efficiency losses from a one-size-fits-all approach.

Conclusion and Policy Recommendations## Conclusions and Policy Recommendations

Green credit policy, as an important practice of ESG investment, has been proven to effectively drive high-pollution enterprises to improve environmental performance. Future policy formulation should further refine industry guidelines, strengthen information disclosure requirements, and coordinate green credit with carbon markets, green bonds, and other tools. For international development institutions, China's case shows that in countries with strong institutional capacity, top-down green finance policies can become an important lever for achieving sustainable development goals.