Can Participation in the Green Standard-Setting Process Promote Green Innovation in Heavy-Pollution Firms? Evidence from China

This study utilizes unique green standard-setting data from the Chinese government to examine the causal effect of heavy-pollution firms’ participation in the process of setting green standards for green innovation. Our research has the following key findings: (1) High-pollution companies engaging in the green standard process have a markedly positive impact on their environmental innovation. Our conclusions hold across multiple rigorous evaluations, including firm fixed effects, instrumental variable methods, placebo analyses, and propensity score-matching techniques. (2) Through our mechanism analysis, we discovered that engaging in the green standard-setting process leads to the creation of a knowledge-sharing network. Within this network, participating in the green standard-setting process effectively enhances green innovation among heavily polluting firms through the knowledge diffusion and enhanced collaboration processes among the participants. (3) In our further analysis, we observed that the positive effect is more significant in companies led by managers with stronger green perceptions and in areas with stricter environmental regulations. Moreover, we demonstrated that involvement in the green standard-setting process can boost the reputation of firms with significant pollution levels. Our study could significantly contribute to the current body of knowledge on the effects of green standardization and the factors driving corporate green innovation. It may also offer additional insights into the implementation of sustainable development practices in emerging economies.