Does green credit promote firm environmental performance? A new perspective of economic growth target constraints

Green credit encompasses financial instruments and services utilized to mitigate greenhouse gas emissions and facilitate adaptation to global climate change. Establishing a long-term stable green credit institution is crucial to promoting carbon abatement goals. This study uses the difference-in-difference (DID) model to discuss the impact of green credit policy (GCP) on environmental performance based on the China industrial enterprise data. Our results show that GCP inhibits the pollution emissions and improve firm environmental performance. This improvement effect is attributed to a reduction in production scale, and financing constraints. Moreover, GCP increases the firms' exit risk from market and promotes the technological innovation of incumbent firms. Economic growth target constraints trigger a positive moderation role in the implementation of GCP. Heterogeneity results show that such improvement effect is more pronounced in state-owned firm, large-scale firms, and high R&D intensity firms. Importantly, our findings also suggest the environmental monitoring effect of green credit is dependent on the institutional quality. Only in a sound market environment can GCP effectively improve firm environmental performance. Finally, we propose to build a systematic incentives and constraints mechanism to achieve the sustainable development. The conclusions of this paper provide empirical evidence and policy implications for the implementation of GCP.