The impact of green credit on ESG performance of heavily polluting enterprises

Taking the issuance of the Green Credit Guidelines as a quasi-natural experiment, this paper investigates the impact and underlying mechanisms of green credit policies on the ESG (Environmental, Social, and Governance) performance of heavily polluting enterprises. Based on data from A-share listed companies in China from 2007 to 2017, this study conducts an empirical analysis using a difference-in-differences (DID) model. The results indicate that the implementation of the Green Credit Guidelines significantly improved ESG performance among heavily polluting enterprises, particularly in the environmental and social dimensions, while the effect on the governance dimension was not statistically significant. Mechanism tests reveal that the green credit policy functions through two main channels: alleviating corporate financing constraints and incentivizing green innovation. Further heterogeneity analysis shows that the policys positive effects are more pronounced for non-state-owned enterprises, large-scale firms, and enterprises located in eastern regions.