Highlights

Abstract

Keywords

۱٫ Introduction

۲٫ Literature review

۳٫ Data, descriptive statistics and empirical strategy

۴٫ Empirical results

۵٫ Conclusion and policy implications

CRediT authorship contribution statement

Declaration of competing interest

Acknowledgements

Appendix.

References

Abstract

This paper investigates the effects of financing constraints on prompting green innovations using a sample of Chinese listed firms in the period 2001–۲۰۱۷٫ Also, we explore how green finance policies resolve financing constraints of firms to green innovation. The capability of green innovation is found to be impaired when firms face higher financing constraints, and privately owned enterprises tend to be more vulnerable than state-owned ones in this regard. Although green finance policies can effectively ease financing restraints on green innovation overall, green credits are less likely to be available to privately owned enterprises. However, these enterprises which are deeply affected by financing constraints have relatively high innovation capabilities. We suggest the government to provide more supports to privately owned enterprises for investing in green projects. Further, both financial institutions and privately owned enterprises should be required to disclose more information on green credits and green projects, respectively. In addition, the China Banking Regulatory Commission should design a synthetic mechanism for evaluating green performance.

۱٫ Introduction

At the 2015 United Nations Climate Change Conference (COP 21, the Conference of the Parties), 195 participating countries signed the Paris Agreement on the mitigation of climate change, reaching a consensus to limit the increase in global temperature to well below 2 ◦C above preindustrial levels. To achieve such long-term climate goals, many countries have made efforts to promote the development of green industry and green innovation (Acemoglu et al., 2016; Li et al., 2018). The capabilities of enterprises in green innovation, however, are limited by financing constraints. Difficulties in accessing financing resources may greatly impede their investments in green technology (Andersen, 2017). Green innovation of enterprises is particularly hindered from financing constraints because it usually has high uncertainty and low return. As a consequence of the global consensus on climate action, green finance refers to investment and loans related to supporting environmentally sustainable development (GFSG, 2016), which has risen sharply in recent years. It is supposed to provide a supportive financing environment for green development. However, whether green finance policies can promote green innovation by effectively resolving the effects of firms’ financing constraints is still unclear.

China is engaged in green development actively. Investment in green sectors has been increasing and the country has become the world’s leading green investment destination. Recently, China committed to being carbon neutral by 2060, which requires comprehensive investment in green projects and technology (Polzin and Sanders, 2020). Either past successes or future ambitions cannot be achieved without policy support. Intensive efforts have been made by the Chinese government to cope with environmental degradation and pollution. In addition to comprehensive regulations and administrative enforcements, green finance policies have been explicitly introduced to support green development. In 2007, the China Banking Regulatory Commission (CBRC) launched “Opinions on Implementing Environmental Protection Policies and Rules and Preventing Credit Risks” and “Guiding Opinions on the Credit Work for Energy Conservation and Emission Reduction.” These guidelines instruct banks to restrict or cease lending to “Two-high & one overcapacity” industries1 and to implement credit classification management according to the environmental impact of projects.