Does green credit accelerate green transformation of heavily polluting enterprises?

Accelerating the green transformation of heavily polluting enterprises is critical to the Chinese government's commitment to reaching carbon peak and neutrality. Using data from Chinese manufacturing listed firms, we assess the influence and mechanism of green credit on the green transformation of heavily polluting firms using the “Green Credit Guidelines” (released in 2012) as a natural experiment. The findings show that in contrast to less polluting companies, implementing a green credit policy impedes green transformation for high-polluting firms. The repression effects on private and medium-small firms are highly pronounced. The inhibitory effect is exerted through credit financing constraint and crowding-out of environmental investment. Notably, further research suggests that the higher the social responsibility rating of severe contamination firms, the less negative the effect of credit policy on their green total factor productivity will be. Improving regional financial development is instrumental in mitigating the negative effect of green credit. Moreover, green credit facilitates green innovation in severe polluting firms with strong social responsibility performance, accelerating their green transformation.