LAUSR

Environmental credit rating (ECR) is a novel environmental governance tool proposed by China, but its implementation effect is still unknown. This study analyzed whether it achieves the goal of encouraging green innovation in enterprises. Based on the green patent data of listed companies in heavy polluting industries in China from 2010 to 2018, we constructed a heterogeneous timing difference-in-differences model to empirically study the impact of the ECR policy on green innovation. We find that the policy has significantly promoted heavy polluting enterprises’ green innovation. Moreover, the results passed a series of robustness tests. Importantly, we find that the policy has a positive effect on enterprises’ green innovation through the reputation mechanism and financing mechanism. Furthermore, the incentive effect of the policy varies with enterprise characteristics and regional characteristics: the green innovation effect of the policy is more obvious in large-sized and state-owned companies and companies in regions with low fiscal pressure and a high level of financial development are more likely to induce firms’ green innovation. Our research will be of practical value to China’s environmental management, as well as global value to other countries.