China’s Green Finance Policy on Green Technology Innovation: History
View Latest Version
Please note this is an old version of this entry, which may differ significantly from the current revision.
Contributor:
Wenqing Zhang
,
Jingrong Dong

Green finance policy (GFP) is widely used to incentivize enterprises to develop green technology innovation (GTI). GFP guides diversified financial capital from high-polluting enterprises and energy-consuming projects to eco-friendly enterprises and cleaner production projects by factoring in the costs of environmental risk into investment decision-making within the financial sector.

  • green finance policy
  • green technology innovation
  • green enterprises

1. Introduction

Human survival and development have been seriously threatened by the ongoing deterioration of the environment and climate due to the discharge of pollutants since the beginning of the 21st century. Consequently, an increasing number of countries have chosen to pursue a “green development” path, which seeks to strike a balance between economic growth and environmental protection. The advancement of green technology innovation (GTI) is crucial to facilitate green development. The outlook report for the 28th meeting of the United Nations Framework Convention on Climate Change (COP28) proposed “enhancing access to advanced technologies and large-scale deployment” [1]. This report highlights the significance of using GTI in addressing and mitigating the impact of climate change. In 2021, carbon emission in China, the world’s largest source of carbon emissions and the second-largest economy, was 11.47 billion tons, twice that of the United States and four times that of the European Union [2]. Meanwhile, its industries, the main drivers of economic growth, produced 7.9 billion tons of carbon, constituting 69% of the country’s total [3]. Accordingly, accelerating the GTI of Chinese enterprises, especially those operating in substantial economic sectors such as industry, is crucial to facilitate global green economic growth and reduce carbon emissions.
Green finance policy (GFP) is widely used to incentivize enterprises to develop GTI. GFP guides diversified financial capital from high-polluting enterprises and energy-consuming projects to eco-friendly enterprises and cleaner production projects by factoring in the costs of environmental risk into investment decision-making within the financial sector [4][5][6]. This approach encourages enterprises to adopt efficient, energy-saving, and eco-friendly production methods through the development of GTI. For instance, IFC’s Environmental and Social Sustainability Performance Standards serve as a tool for clients to identify environmental and social risks associated with their investment activities, thereby incentivizing them to pursue green production and technological improvement [7]. ASSURPOL, a co-reinsurance group based in France, encourages the development of the GTI by reinsuring environmental risks transferred to pools by insurers on behalf of its members. This approach incentivizes participants to adopt environmentally friendly practices while protecting the interests of the ultimate insured [8].
Nevertheless, the effectiveness of GFP in developing countries such as China remains uncertain due to their relative lack of experience in designing and implementing policies compared with international organizations and developed nations. Especially in China’s limited history of environmental policy application, GFP is often designed to support the green industry rather than the eco-friendly behavior of enterprises [9], and there is an obvious tendency to support the development of the green industry by restraining the polluting industry [9][10]. If GFP is interpreted or implemented as an industrial subsidy policy, it may not provide financial support to traditional industrial enterprises seeking to adopt green production technology, while easing the financial constraints of non-innovative behavior by green industrial enterprises. This approach is not conducive to promoting the rational allocation of financial resources and the development of GTI among Chinese enterprises [11][12].

2. The Impact of GFP on Technological Innovation

The first group of studies has focused on the impact of GFP on technological innovation. Relevant literature has examined this relationship from two perspectives: the impact at a national-regional level and the impact on industries and firms. The vast majority of studies have concluded that GFP increases the efficiency of regional technological innovation, especially in developing countries and underdeveloped regions [13][14][15][16]. Irfan et al. [17] utilized the dataset covering 30 provinces in China from 2010 to 2019 and concluded that financial institutions’ green funds were applied to R&D, which resulted in the promotion of green innovation at the regional level. Lin and Ma [18] proved that efficient financial activities can enhance the quantity and quality of GTI in both developed and underdeveloped cities, and cities with higher levels of human capital are conducive to green innovation activities. Other studies have explored the impact of GFP on innovation in enterprises [19][20][21], particularly those in heavily polluting and high energy-consuming industries [22][23][24]. Zhang et al. [25] stated that China’s Green Credit Policy has enhanced the investment and financing environment for large enterprises with high energy consumption and high pollution levels, referred to as “two-high” enterprises, thereby promoting innovation efficiency in such enterprises. Xu et al. [9] observed that China’s Green Finance Pilot Policy can significantly enhance GTI in industrial enterprises.

3. The Influence Mechanism of GFP on Technological Innovation

The second group of literature has focused on examining the influence mechanism of GFP on technological innovation, with the scope of discussion in the relevant literature divided into two categories: industry-level and firm-level mechanisms. To explore the mechanisms from an industry-level perspective, some of the existing studies have proposed that GFP influences enterprise innovation by affecting the financing environment of the industry [26][27][28]. Li et al. [29] discovered that the introduction of green credit policy led to a tightening of external financing for heavy polluters, which adversely affected the efficiency and quality of green innovation for such enterprises. Su et al. [30] contended that the overall financing environment of the industry will improve when the intensity of green credit exceeds a certain threshold, which can promote green technological innovation in firms. Another part of the research has suggested that GFP primarily influences firm innovation by optimizing the allocation of production and R&D factors within the industry [31][32]. Irfan et al. [17] proposed that green finance can optimize the allocation of private idle capital by aggregating the participation of public and institutional investors in green investments, thereby enhancing the efficiency of green projects and providing adequate financial support for corporate green innovation. For the exploration of the mechanism from the firm’s perspective, most of the relevant papers have contended that GFP affects the innovation performance of enterprises by modifying micro factors, such as the enterprise’s living environment, operating costs, and government–enterprise relations [33][34]. Liu and Xiang [35] documented that China’s Green Finance Reforms have incentivized corporate innovation by reducing the cost of debt, increasing innovation inputs, and attracting foreign investment. Wang et al. [36], however, argued that GFP creates an implicit network of linkages between firms and government. This network internalizes the costs of environmental management activities and ultimately induces firms to improve their environmental performance through GTI.

4. The Countermeasures to Stimulate the Innovation Incentive Effect of GFP

Based on the summary of the perspectives on the impact and influence mechanisms of GFP on technological innovation (including GTI), the third group of studies has further discussed the means and countermeasures to stimulate the innovation incentive effect of GFP. A part of this literature has focused on the conditions conducive to the positive effect of GFP on technological innovation, i.e., the moderators of the innovation incentives of GFP. These studies have concluded that the appropriate intensity of government regulation [36][37][38], industry concentration [39], and the level of corporate environmental information disclosure [30] can positively moderate the impact of GFP on technological innovation and GTI of enterprises. Another part of the literature has contended that the development and implementation of GFP, especially in developing countries, are not yet well-developed. This implies that GFP needs to be used in conjunction with other environmental policy instruments to maximize its policy effects [40][41]. Although this research path is gaining prominence in academic circles for examining the effects of GFP policies, the number of relevant studies is currently insufficient. Currently, studies on the synergistic effects or coupling effects of environmental policy instruments such as environmental regulation [21], environmental subsidies [42], R&D subsidies [43], carbon trading [44], and public monitoring [45] on GTI are available. Few studies have incorporated GFP into the development of an environmental policy system. Only a few studies have discussed the establishment of a GFP system from the perspective of innovation incentives [46][47]. However, these studies are limited to theoretical analysis and policy recommendations, lacking detailed and quantitative empirical tests.

This entry is adapted from the peer-reviewed paper 10.3390/su151310114

References

  1. Lawrance, E.L.; Rao, M. Why COP28 must be a health COP. BMJ 2023, 380, 589.
  2. Guo, L.; Bai, L.; Liu, Y.; Yang, Y.; Guo, X. Research on the impact of COVID-19 on the spatiotemporal distribution of carbon dioxide emissions in China. Heliyon 2023, 9, e13963.
  3. Zhou, X.; Niu, A.; Lin, C. Optimizing carbon emission forecast for modelling China’s 2030 provincial carbon emission quota allocation. J. Environ. Manag. 2023, 325, 116523.
  4. Li, G.J.; Jia, X.M.; Khan, A.A.; Khan, S.U.; Ali, M.A.; Luo, J.C. Does green finance promote agricultural green total factor productivity? Considering green credit, green investment, green securities, and carbon finance in China. Environ. Sci. Pollut. Res. 2022, 30, 36663–36679.
  5. Sun, X.; Zhou, C.; Gan, Z. Green Finance Policy and ESG Performance: Evidence from Chinese Manufacturing Firms. Sustainability 2023, 15, 6781.
  6. Xu, J.; She, S.; Gao, P.; Sun, Y. Role of green finance in resource efficiency and green economic growth. Resour. Policy 2023, 81, 103349.
  7. Alwan, Z.; Ilhan Jones, B. IFC-based embodied carbon benchmarking for early design analysis. Autom. Constr. 2022, 142, 104505.
  8. Tinard, P.; Wang, Z.-X.; Moncoulon, D.; Veysseire, M.; Regimbeau, F.; Deque, M. Coupling a global climatic model with insurance impact models for flood and drought: An estimation of the financial impact of climate change. In Proceedings of the 3rd European Conference on Flood Risk Management (FLOODrisk), Lyon, France, 17–21 October 2016.
  9. Xu, A.; Zhu, Y.; Wang, W. Micro green technology innovation effects of green finance pilot policy—From the perspectives of action points and green value. J. Bus. Res. 2023, 159, 113724.
  10. Liu, Q.; Tang, L. Research on the accelerating effect of green finance on the transformation of energy consumption in China. Res. Int. Bus. Financ. 2022, 63, 101771.
  11. Hunjra, A.I.; Hassan, M.K.; Zaied, Y.B.; Managi, S. Nexus between green finance, environmental degradation, and sustainable development: Evidence from developing countries. Resour. Policy 2023, 81, 103371.
  12. Le, T.-H.; Nguyen, C.P.; Park, D. Financing renewable energy development: Insights from 55 countries. Energy Res. Soc. Sci. 2020, 68, 101537.
  13. Samargandi, N.; Sohag, K. The interaction of finance and innovation for low carbon economy: Evidence from Saudi Arabia. Energy Strategy Rev. 2022, 41, 100847.
  14. Wang, Q.-J.; Wang, H.-J.; Chang, C.-P. Environmental performance, green finance and green innovation: What’s the long-run relationships among variables? Energy Econ. 2022, 110, 106004.
  15. Ying, L.; Li, M.; Yang, J. Agglomeration and driving factors of regional innovation space based on intelligent manufacturing and green economy. Environ. Technol. Innov. 2021, 22, 101398.
  16. Rao, H.; Chen, D.; Shen, F.; Shen, Y. Can Green Bonds Stimulate Green Innovation in Enterprises? Evidence from China. Sustainability 2022, 14, 15631.
  17. Irfan, M.; Razzaq, A.; Sharif, A.; Yang, X. Influence mechanism between green finance and green innovation: Exploring regional policy intervention effects in China. Technol. Forecast. Soc. Chang. 2022, 182, 121882.
  18. Lin, B.; Ma, R. How does digital finance influence green technology innovation in China? Evidence from the financing constraints perspective. J. Environ. Manag. 2022, 320, 115833.
  19. Hu, G.; Wang, X.; Wang, Y. Can the green credit policy stimulate green innovation in heavily polluting enterprises? Evidence from a quasi-natural experiment in China. Energy Econ. 2021, 98, 105134.
  20. Li, Z.; Liao, G.; Wang, Z.; Huang, Z. Green loan and subsidy for promoting clean production innovation. J. Clean. Prod. 2018, 187, 421–431.
  21. Liu, J.; Zhao, M.; Wang, Y. Impacts of government subsidies and environmental regulations on green process innovation: A nonlinear approach. Technol. Soc. 2020, 63, 101417.
  22. Li, S.; Wang, Q. Green finance policy and digital transformation of heavily polluting firms: Evidence from China. Financ. Res. Lett. 2023, 55, 103876.
  23. Chai, S.; Zhang, K.; Wei, W.; Ma, W.; Abedin, M.Z. The impact of green credit policy on enterprises’ financing behavior: Evidence from Chinese heavily-polluting listed companies. J. Clean. Prod. 2022, 363, 132458.
  24. Ge, Y.; Zhu, Y. Boosting green recovery: Green credit policy in heavily polluted industries and stock price crash risk. Resour. Policy 2022, 79, 103058.
  25. Zhang, S.; Wu, Z.; Wang, Y.; Hao, Y. Fostering green development with green finance: An empirical study on the environmental effect of green credit policy in China. J. Environ. Manag. 2021, 296, 113159.
  26. Amore, M.D.; Bennedsen, M. Corporate governance and green innovation. J. Environ. Econ. Manag. 2016, 75, 54–72.
  27. D’Orazio, P.; Valente, M. The role of finance in environmental innovation diffusion: An evolutionary modeling approach. J. Econ. Behav. Organ. 2019, 162, 417–439.
  28. Morgan, T. The techno-finance fix: A critical analysis of international and regional environmental policy documents and their implications for planning. Prog. Plan. 2018, 119, 1–29.
  29. Li, Q.; Zhou, R.; Xiong, J.; Wang, Y. Rushing through the clouds, or waiting to die? The effect of the green credit policy on heavily polluting firms. N. Am. J. Econ. Financ. 2023, 64, 101869.
  30. Su, X.; Pan, C.; Zhou, S.; Zhong, X. Threshold effect of green credit on firms’ green technology innovation: Is environmental information disclosure important? J. Clean. Prod. 2022, 380, 134945.
  31. Li, C.; Sampene, A.K.; Agyeman, F.O.; Brenya, R.; Wiredu, J. The role of green finance and energy innovation in neutralizing environmental pollution: Empirical evidence from the MINT economies. J. Environ. Manag. 2022, 317, 115500.
  32. Fan, J.; Zhou, Y. Empirical Analysis of Financing Efficiency and Constraints Effects on the Green Innovation of Green Supply Chain Enterprises: A Case Study of China. Sustainability 2023, 15, 5300.
  33. Liu, B.; Zhou, W.; Chan, K.C.; Chen, Y. Corporate executives with financial backgrounds: The crowding-out effect on innovation investment and outcomes. J. Bus. Res. 2020, 109, 161–173.
  34. Sovacool, B.K.; Jeppesen, J.; Bandsholm, J.; Asmussen, J.; Balachandran, R.; Vestergaard, S.; Andersen, T.H.; Sørensen, T.K.; Bjørn-Thygesen, F. Navigating the “paradox of openness” in energy and transport innovation: Insights from eight corporate clean technology research and development case studies. Energy Policy 2017, 105, 236–245.
  35. Liu, C.; Xiong, M. Green finance reform and corporate innovation: Evidence from China. Financ. Res. Lett. 2022, 48, 102993.
  36. Wang, H.; Qi, S.; Zhou, C.; Zhou, J.; Huang, X. Green credit policy, government behavior and green innovation quality of enterprises. J. Clean. Prod. 2022, 331, 129834.
  37. Ma, M.; Zhu, X.; Liu, M.; Huang, X. Combining the role of green finance and environmental sustainability on green economic growth: Evidence from G-20 economies. Renew. Energy 2023, 207, 128–136.
  38. Du, J.; Shen, Z.; Song, M.; Vardanyan, M. The role of green financing in facilitating renewable energy transition in China: Perspectives from energy governance, environmental regulation, and market reforms. Energy Econ. 2023, 120, 106595.
  39. Freire, P.A. Enhancing innovation through behavioral stimulation: The use of behavioral determinants of innovation in the implementation of eco-innovation processes in industrial sectors and companies. J. Clean. Prod. 2018, 170, 1677–1687.
  40. Numan, U.; Ma, B.; Sadiq, M.; Bedru, H.D.; Jiang, C. The role of green finance in mitigating environmental degradation: Empirical evidence and policy implications from complex economies. J. Clean. Prod. 2023, 400, 136693.
  41. Wang, M.; Li, X.; Wang, S. Discovering research trends and opportunities of green finance and energy policy: A data-driven scientometric analysis. Energy Policy 2021, 154, 112295.
  42. Dewick, P.; Maytorena-Sanchez, E.; Winch, G. Regulation and regenerative eco-innovation: The case of extracted materials in the UK. Ecol. Econ. 2019, 160, 38–51.
  43. Koh, Y.; Lee, G.M. R&D subsidies in permissive and restrictive environment: Evidence from Korea. Res. Policy 2023, 52, 104620.
  44. Xu, X.; Cui, X.; Chen, X.; Zhou, Y. Impact of government subsidies on the innovation performance of the photovoltaic industry: Based on the moderating effect of carbon trading prices. Energy Policy 2022, 170, 113216.
  45. Loukis, E.; Charalabidis, Y.; Androutsopoulou, A. Promoting open innovation in the public sector through social media monitoring. Gov. Inf. Q. 2017, 34, 99–109.
  46. Cojoianu, T.F.; Clark, G.L.; Hoepner, A.G.F.; Veneri, P.; Wójcik, D. Entrepreneurs for a low carbon world: How environmental knowledge and policy shape the creation and financing of green start-ups. Res. Policy 2020, 49, 103988.
  47. Zhang, M.; Hong, Y.; Zhu, B. Does national innovative city pilot policy promote green technology progress? Evidence from China. J. Clean. Prod. 2022, 363, 132461.
More
© Text is available under the terms and conditions of the Creative Commons Attribution (CC BY) license; additional terms may apply. By using this site, you agree to the Terms and Conditions and Privacy Policy.
This entry is offline, you can click here to edit this entry!
Video Production Service
Feedback