Green finance policy and heavy pollution enterprises: a supply-chain and signal transmission of green credit policy for the environment—Vietnam perspective

Green credit provides capital source to business investments that directs firms to make effective use of natural resources along with other environmental agendas such as waste management, controlling pollution, restore eco-system and conserve bio-diversity. These efforts altogether help in achieving economic and environmental sustainability and social equity. Thus, the present study aspires to combine the economic and environmental aspect of green credit on the basis of green growth and sustainability criteria. The study uses the data set over the period from 2013 to 2022 and employs DID model (difference-in-difference) to investigate the influence of green credit policy on the financing decisions of firms that heavily pollute the environment. The study finds the green credit policy has significantly reduced bank loans and non-bank loans for enterprises that heavily pollute the environment. Green credit sends policy regulation signals in capital markets and this signaling effect restrains the debt and equity financing of enterprises that heavily pollute the environment because the investors in capital markets are getting aware of risks associated with polluting enterprises under the green credit policy. Green credit policy also transmits the regulating signals to supply chain financing of firms i.e., downstream and upstream trade credit, hence, restricting the commercial trade credit of polluting firms. Finally, it is observed that green-credit policies act as efficient boosters for sustainable climate quality regulation in areas where heavily polluting enterprises operate.