Leveraging Green Finance Innovation to Curb Pollution Emissions: Evidence From High-polluting Firms in China

This study examines the impact of green finance innovation reform on pollution emissions within high-polluting firms in China. Drawing on the Environmental Kuznets Curve (EKC) hypothesis, endogenous growth theory and resource-based view, our theoretical framework posits that green finance innovation reduces pollution by fostering increased R&D investments, encouraging the adoption of cleaner production technologies, and promoting a reduction in output scale. We employ data from China’s A-share listed high-polluting firms over the period 2011 to 2023, leveraging the establishment of green finance innovation pilot zones in 2017, 2019, and 2022 as a quasi-natural experiment. A double machine learning model is used to estimate the causal effects. The results support our hypotheses. Further, heterogeneity analysis suggests that the pollution reduction effect is most pronounced in large-scale firms, firms located in regions with advanced financial development, and areas characterized by high institutional quality. These findings highlight the critical role of green finance innovation in mitigating pollution, offering actionable insights for policymakers to expand such reforms across regions and industries. JEL Classification: O30, P13.