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Green innovation (GI) is increasingly recognised as an effective strategy for tackling climate change, mitigating environmental issues, and promoting sustainable development. Using panel data of the Chinese listed firms from 2007 to 2019, this study adopts the difference-in-differences approach to assess the impact of the green finance policy (GFP) initiated by the Chinese government in 2012 on the green innovation performance of firms. The findings reveal that the GFP significantly boosts the green innovation performance of heavily polluting enterprises (HPEs). Notably, this effect is more pronounced in state-owned enterprises and firms with high dependence on external finance. Compared with penalty-based regulations, incentive-based and voluntary environmental regulations demonstrate more significant moderating effects on the relationship between the GFP and green innovation performance for HPEs. We also identify improved efficiency in the usage of green investments as a potential mechanism through which the GFP enhances the green innovation performance of HPEs. Further comparative analysis shows that green enterprises can achieve simultaneous improvement in both the quality and quantity of green innovation, whereas HPEs predominantly exhibit enhancements in innovation quantity. To maximise the GFP's positive effects, it is recommended to facilitate more targeted bank lending towards HPEs to support their structural transformation. Additionally, the coordinated deployment of diverse environmental policy instruments is advised to exploit their synergistic effects. • This paper confirms the positive relationship between Green Finance Policy (GFP) and the green innovation. • We develop a novel machine learning approach to enhance the accuracy of variable measurements. • Firms with different ownership structure and external finance reliance are impacted differently by the GFP. • Both incentive-based and voluntary environmental regulations have positive moderation effects. • GFP can improve the green innovation by enhancing the green investment efficiency. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of China's environmental regulations, with a focus on the green credit policy, on green innovation in pursuit of the "carbon peak and carbon neutrality" goal. Given the implementation of the 2012 Green Credit Guidelines, this paper employs the Difference-in-Difference Method (DID) and conducts a quasi-natural experiment to empirically examine the interactions among the central government, local governments, and high-pollution and high-emission enterprises by exploring the impact of green credit policies on green innovation of these enterprises. Relying on 4503 samples of 237 high-pollution and high-emission enterprises listed in the main board in China from 2003 to 2021, this study reveals that the green credit policy can improve green innovation of these enterprises. Specifically, this study explores the detailed mechanism through which the green credit policy enables these enterprises to increase their market concentration and then the monopoly profits, which in turn promotes their green innovative productivity. In addition, this paper also reveals how local governments' political and financial incentives may serve as positive and negative moderating factors, respectively, within the impact mechanism. This study has valuable implications for how to effectively formulate and implement environmental regulations by balancing the interests of the central government, local governments and enterprises. [ABSTRACT FROM AUTHOR]