Green Finance and Corporate Green Innovation: A Systematic Literature Review

Abstract

Green finance and corporate green innovation have become pivotal in addressing ecological and environmental challenges amidst worsening global environmental conditions. This study aims to provide a systematic explanation of the factors through which green finance promotes corporate green innovation. By qualitatively synthesizing 42 studies published between 2019 and 2024, the research identifies four key factors influencing this relationship. These include two direct aspects—financial support and policy guidance—and two indirect aspects—financing constraints and term restructuring. The analysis reveals a research gap in market-based financing, where most studies focus on credit financing, while discussions on diverse instruments like green bonds and green equities remain limited. Additionally, the impact of policy uncertainty, particularly on long-term investment decisions is underexplored. Existing research primarily emphasizes easing financing constraints, with limited attention to how green finance can also support green innovation by extending funding horizons through term restructuring. Future research should focus on these areas to deepen understanding and enhance practical applications.

Introduction

Globalization in recent decades has led to a significant increase in global economic growth. Nonetheless, this rapid growth has caused considerable ecological problems, which pose a dilemma for policymakers and scholars seeking to find a balance between economic advancement and environmental protection (Wang, Ma, & Liao, 2023). Businesses around the globe have come to understand that for them to survive, they need to address issues such as environmental pollution, resource conservation, and sustainable development (Xiang et al., 2022). Against this backdrop, green innovation has emerged as a key driver of sustainable growth (Solow, 1957). Green innovation refers to improvements in products or processes that enhance environmental performance, such as energy-saving technologies, pollution prevention, waste recycling, green product design, and sustainable management practices (Y. S. Chen et al., 2006). As it is expected to contribute approximately 60% of the targeted carbon emission reductions, green innovation is widely recognized as a key pathway to reconciling economic development with environmental protection (Rennings, 2000).

However, green innovation requires substantial financial investment and involves higher risks, imposing significant financial burdens on firms (Savignac, 2008). Although the Paris Agreement pledged $100 billion annually from 2020 to 2025 to support developing nations in transitioning to cleaner energy and upgrading industrial technologies, this funding remains insufficient (United Nations, 2015). The International Energy Agency estimates that achieving global emission reduction and sustainable development goals will require over $53 trillion in energy-related investments by 2035, far exceeding current financial commitments (Sachs et al., 2019). In this context, green finance has gained prominence as a critical instrument for alleviating financial constraints, optimizing resource allocation, and driving green technology innovation and industrial transformation (Taghizadeh-Hesary et al., 2021).

Green finance refers to the allocation of financial resources and institutional mechanisms that support environmentally sustainable projects, including investments in renewable energy, energy efficiency, and green transportation (Soundarrajan & Vivek, 2016). Traditional financing often fails to meet the capital demands of green industries, highlighting the growing importance of green finance. Many environmentally sustainable projects require substantial upfront investment and involve long payback periods, making them less attractive to conventional financial institutions (Campiglio, 2016). By mobilizing capital and providing long-term financial support, green finance could mitigates these barriers and facilitates investment in green innovation (Zhou et al., 2023). According to Porter’s hypothesis, well-structured environmental policies and financial mechanisms can drive technological advancements and enhance corporate competitiveness (Porter & Linde, 1995). Beyond easing financing constraints, green finance accelerates R&D, commercialization, and industrial application of corporate green technologies (Agrawal et al., 2024). Given the pivotal role of green finance in promoting green innovation, understanding the mechanisms through which it influences corporate innovation is essential for developing effective financial instruments and policy frameworks that facilitate sustainable technological advancements and industrial transformation.

While green finance is recognized for its role in promoting sustainable practices, the specific mechanisms through which it influences corporate green innovation remain underexplored. Existing studies often focus on individual dimensions, such as policy impacts or financial instruments (J. Liu et al., 2022), without providing a comprehensive analysis of how green finance drives green innovation within firms (Zhou et al., 2023). This gap likely arises from the inherent complexity of green finance mechanisms and the varied operating environments of firms, which make it challenging to generalize their influence on innovation. Addressing this gap is crucial for policymakers and scholars aiming to design effective financial instruments and policies that foster environmental innovation. To fill this gap, this study systematically identifies and categorizes the micro-level factors through which green finance drives corporate green innovation and examines its underlying mechanisms. Specifically, it examines two direct pathways, namely financial support and policy guidance, as well as two mediating factors, financing constraints and capital structure adjustments. In addition, the study incorporates sub-factors within financial support and policy guidance, including direct financial support, market-based financing, policy-driven capital allocation, policy uncertainty, and policy incentives, to construct a comprehensive analytical framework. By systematically reviewing studies from 2019 to 2024, this research seeks to deepen our understanding of how green finance promotes corporate green innovation and to provide a theoretical foundation for developing targeted financial policies that enhance the role of green finance in driving sustainable technological progress and industrial transformation. Accordingly, this study seeks to answer the following key research questions:

• RQ1: What are the specific factors through which green finance drives corporate green innovation?

• RQ2: What are the outcomes of these factors on corporate green innovation?

This study makes several important contributions. First, it develops a structured framework that systematically categorizes the pathways through which green finance influences corporate green innovation. By examining financial support, policy guidance, financing constraints, and term restructuring, the study provides a comprehensive understanding of how green finance facilitates sustainable innovation. Additionally, it identifies key gaps in the literature, including the limited focus on policy uncertainty, the underexplored role of long-term financing in green R&D, and the varying effectiveness of financial instruments across different contexts. Existing research predominantly focuses on financing constraints as the key mediating factor, while other potential mechanisms, such as capital costs, R&D investment, and risk management, have received limited attention. Furthermore, existing studies have not sufficiently explored the long-term role of green finance in optimizing firms’ financing structures and extending investment horizons. By highlighting these gaps, this study provides a foundation for future research, encouraging scholars to explore these underexamined areas and refine the understanding of how green finance fosters sustainable corporate innovation. These insights not only contribute to academic discourse but also offer valuable guidance for policymakers and financial institutions in designing more effective green finance strategies.

The remainder of this paper is organized as follows. The Methods section describes the methodology adopted in the paper (i.e., the systematic literature review) and descriptive statistics of the sample articles identified as relevant according to the systematic literature review approach. The Results section systematizes and analyses the main findings of the sample articles. The Discussion section further interprets these findings, while the Limitations and Implications section highlights the limitations and practical implications. Finally, the Conclusion section provides a comprehensive summary of this study.

Methods

The Review Protocol—PRISMA

The Prisma Review Program functions as an aid in conducting this research. Prisma was specifically created to encourage researchers to provide accurate information and relevant particulars. The initiation of the review procedure for this SLR involved the development of appropriate research questions. The authors discuss the system retrieval technique, which consists of three stages: identification, screening (including and excluding criteria), and eligibility (Moher et al., 2010). Subsequently, performing a quality evaluation of the selected articles followed PRISMA guidelines, emphasizing methodological soundness, data transparency, and relevance to the research objectives. Two independent reviewers evaluated each article based on these criteria, and only those that met the predetermined standards were included in the final analysis. Ultimately, the authors elucidated the methodology for acquiring summary data and the subsequent procedures for analyzing and verifying the data. Figure 1 provides a visual overview of the entire search process, illustrating the key stages and the number of articles excluded at each step.

Figure 1.

Flow chart of the search process.

Systematic Searching Strategies

The retrieval procedure was divided into three distinct stages: identification, screening, and eligibility. First, identification involves searching for synonyms, related concepts, and variations in keywords from two databases: finance, factors, and corporate innovation. These databases include Scopus and Web of Science (WOS). To enhance the diversity of available publications, Siddaway et al. (2019) suggested using a minimum of two distinct databases during the article search process. With excellent retrieval capabilities, broad indexing (covering over 5,000 publications), article quality control, and multidisciplinary focus, both databases have the potential to emerge as the top choice for systematic literature overviews in their discipline. Within the two primary databases, Scopus and Web of Science, the authors successfully enhanced existing keywords and constructed comprehensive search strings. Having run a pilot study, the selection of keywords was determined by research questions, input from the online synonym dictionary, and previously investigated keywords. The following keywords were used.

TITLE-ABS-KEY: (“green innovation” OR “eco-innovation” OR “sustainable innovation”) AND (“green finance” OR “sustainable finance” OR “green funding” OR financing OR “capital structure” OR “investment” OR “green bonds” OR “green credit” OR “green equity” OR “venture capital”) AND (effect OR impact OR route OR factor* OR mechanism)

The authors employed a database sorting function to determine the selection criteria for 835 articles. The study’s inclusion and exclusion criteria were applied to filter all papers before the screening phase. The authors established the following criteria for inclusion: the substance of the chosen articles, publication schedule, and language used. Database searches revealed a significant surge in finance–innovation studies after 2019. Consequently, we focused on publications from 2019 onward to capture contemporary trends and empirical evidence arising from recent policy shifts and market developments in green finance, excluding 49 articles. Furthermore, to ascertain quality, the analysis exclusively incorporated articles published in journals that provided empirical evidence. Moreover, to prevent any misinterpretations, the study merely included works authored in the English language (Mohamed Shaffril et al., 2021). Of these, 32 articles were excluded because of their publication as article commentaries, books, volumes, conference papers, or in languages other than English. Additionally, 67 duplicate articles were excluded. The specific inclusion and exclusion criteria are listed in Table 1.

Table 1.

Inclusion and Exclusion Criteria.

Criteria	Inclusion	Exclusion
Content	Empirical evidencepublished in a journal	Published as an article review,chapters in a book, book series, book, or conference
Publication Timeline	2019–2024	Before 2019
Language	Written in English	Written in other languages

Screening comprises the subsequent stages of the retrieval procedure. Initially, 687 articles were selected based on the established inclusion and exclusion criteria. To avoid interpretative biases and because they did not provide the specific quantitative evidence required to assess the impact of green finance on corporate green innovation, qualitative studies and meta-analyses were excluded. Additionally, to enhance content relevance, the selection was restricted to articles within the management, business, and finance disciplines and limited to those published in SSCI- or SCI-indexed journals, resulting in the elimination of 419 articles. Ultimately, 268 articles were excluded based on abstracts review. The criteria used to exclude papers were as follows:

• Described are irrelevant to innovation or finance, such as education, engineering, University spin-off, etc.

• Related to corporate management or finance, but irrelevant to corporate innovation.

• Related to corporate innovation, but irrelevant with finance.

• Using qualitative or meta-analysis.

The third phase was eligibility. We thoroughly examined the full text of the selected articles to verify that all remaining articles (after the screening procedure) were closely aligned with the study’s theme. 83 papers were selected based on the research objectives and questions addressed in this article. 42 articles that detailed the relationship between finance and enterprise innovation and the factors by which finance affects innovation were included. Seventeen articles were excluded based on their full text. The criteria used to exclude papers were as follows:

• The content focuses on the influence of finance on green innovation, which is entirely unrelated to green finance.

• The articles examine the influence of green innovation on the financial industry.

• The articles are limited to discussing the effects of financing constraints on green innovation; no green finance-related content has been presented.

• The articles acknowledge the significance of green finance in promoting green innovation and environmental betterment but fail to provide specific details on the mechanisms by which green finance influences green innovation.

Data Abstraction and Analysis

This study employed thematic analysis, as outlined by Mohamed Shaffril et al. (2021), to categorize the dimensions identified in the selected literature. Two independent researchers manually coded the data using Excel. Initial themes were identified by examining recurring patterns in the abstracts and refined through iterative group discussions. Recurring patterns in the abstracted data were grouped into four primary themes. Subsequently, five sub-themes were derived through re-examination of the grouped data and full texts. Final themes and sub-themes were validated by cross-checking with the full texts, and any discrepancies were resolved through consensus. Finally, all themes and sub-themes were appropriately labeled. It should be noted that all selected publications employed quantitative research methodologies.

Results

Summary of the Included Articles

Green finance influences corporate green innovation by optimizing capital allocation, expanding financing channels, and alleviating financial constraints on green industries while restricting funding for polluting sectors (M. L. Wang, 2023). By improving access to sustainable funding, green finance provides critical support for environmentally friendly innovation, shaping firms’ long-term development.

From the literature, it is evident that the influence of green financing on green innovation can be categorized into direct and indirect impacts. Furthermore, two key factors, namely financial support and policy guidance, contributed to this direct impact, which have a mediating influence. While there are additional issues to examine, such as environmental regulation, information disclosure, and corporate social responsibility, they primarily serve as moderating influences on green innovation and are therefore not included in the scope of this study. This study categorizes the impact of green finance on green innovation into four distinct themes: financial support, policy guidance, financing constraints, and term restructuring. For the financial support, two subthemes were selected: market-based financing and direct financial support. In terms of policy guidance, three subthemes were selected: policy-driven allocation of financial resources, policy uncertainty, and policy incentives (see Figure 2). Of the 42 selected articles, 1 was published in 2020, 4 in 2021, 8 in 2022, 21 in 2023, and 8 in 2024. Among the selected studies, 28 focus on China, while 6 adopt a global perspective, and the remaining studies examine other countries. This distribution reflects broader research trends rather than selection bias. As a global leader in green finance policy implementation, China has garnered significant academic attention, leading to a wealth of empirical studies on this topic. However, this study does not exclusively focus on China; instead, it synthesizes existing literature to analyze the global impact of green finance on corporate green innovation. Table 2 provides a summary of the thematic classification of the reviewed literature, outlining the key influencing factors and their mechanisms in driving corporate green innovation. Table 3 presents the theoretical frameworks, industry classifications, and regional focus of the reviewed studies, offering insights into their disciplinary perspectives, sectoral emphasis, and geographic distribution.

Figure 2.

Theoretical mechanism.

Table 2.

Summary of the Key Findings with Themes and Subthemes.

Author	Title	Topics	Direct impacts			Indirect impacts
			Themes	Sub-themes	Results	Themes	Results
Wang, R.; Ye, L.; Fang, Y.	How does green credit policy affect innovation efficiency of heavily polluting firms? Evidence from a quasi-natural experiment in China	The implementation of Green Credit Policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	Financing constraints	Increasing financial cost for heavily polluting firms (HPFs)
Wu, R.	Innovation or imitation? The impacts of financial factors on green and general research and development	Diversified funding sources	Financial support	Market-based financing	Increasing capital funding	Financing constraints	Alleviating financial constraints
Xie, Q.; Zhang, Y.; Chen, L.	Does green credit policy promote innovation: A case of China	Implementation of Green Credit Policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	Financing constraints	Increasing credit financing cost in polluting companies
Ren, X.; Xia, X.; Taghizadeh-Hesary, F.	Uncertainty of uncertainty and corporate green innovation—Evidence from China	Policy uncertainty’s ex-post volatility	Policy guidance	Policy uncertainty	Decreasing investment and delaying operators’ decisions about innovation	—	—
Chi, Y.; Hu, N.; Lu, D.; Yang, Y.	Green investment funds and corporate green innovation: From the logic of social value	Green investment funds	Financial support	Market-based financing	Increasing monetary capital	Financing constraints	Alleviating financial constraints
Zhang, W.; Luo, Q.; Zhang, Y.; Yu, A.	Does green credit policy matter for corporate exploratory innovation? Evidence from Chinese enterprises	Implementation of Green Credit Policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	Financing constraints	Increasing R&D investment in green credit-restricted industries
Zhou, K.; Tao, Y.; Wang, S.; Luo, H.	Does Green Finance Drive Environmental Innovation in China?	Green Finance	—	—	—	Financing constraints	Alleviating financial constraints by increasing investment channel
Li, Q.; Zhou, R.; Xiong, J.; Wang, Y.	Rushing through the clouds, or waiting to die? The effect of the green credit policy on heavily polluting firms	Implementation of Green Credit Policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	—	—
Gu, X.; Tian, Z.	Does the green credit policy promote the technological innovation of clean energy enterprises? Empirical evidence from China	Implementation of Green Credit Policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	Financing constraints	Significantly reduces the financing cost of clean energy enterprises
Jia, J.; He, X.; Zhu, T.; Zhang, E.	Does green finance reform promote corporate green innovation? Evidence from China	Established pilot zones for green finance reform	Policy guidance	Policy incentives	Optimizing credit resource allocation, and guiding the fiscal subsidies of the government	Financing constraints	Relieving financing constraints on green enterprise
Lin, B.; Xie, Y.	Driving Green Technology Innovation in Renewable Energy: Does Venture Capital Matter	Venture capital	Financial support	Market-based financing	Increasing monetary capital	Financing constraints	Alleviating financing constraints
Xiang, X.; Liu, C.; Yang, M.	Who is financing corporate green innovation?	Government subsidy	Financial support	Direct financial support	Expansion of financing channels	—	—
Wang, F.; Ma, J.; Liao, C.	Capital market opening up and corporate green technology innovation: Evidence from China’s Stock Connect program	The capital market opening up	Policy guidance	Policy incentives	Increases the financing scale of green enterprises	Financing constraints	Alleviating financing constraints
Zhang, T.	Can green finance policies affect corporate financing? Evidence from China’s green finance innovation and reform pilot zones	Green Finance Innovation and Reform Pilot Zones	Policy guidance	Policy incentives	Increases the financing scale of green enterprises and reduces that of polluting enterprises	Financing constraints	Imposing stricter constraints on the financing scale of large and less profitable heavy polluting enterprises
Feng, G.-F.; Niu, P.; Wang, J.-Z.; Liu, J.	Capital market liberalization and green innovation for sustainability: Evidence from China	Capital market liberalization	Policy guidance	Policy incentives	Improving information disclosure quality effect	Financing constraints	Alleviating financing constraints
Peng, W.; Xiong, L.	Managing financing costs and fostering green transition: The role of green financial policy in China	The inclusion of green bonds intothe central bank eligible collateral framework	Financial support	Market-based financing	Decline in the bond spread for green bonds and an increase in brown bonds, demonstrating the existence of the green premium	Term restructuring	Increasing the scale of long-term loans
Zhang, X.; Song, Y.; Zhang, M.	Exploring the relationship of green investment and green innovation: Evidence from Chinese corporate performance	Green investments	Financial support	Market-based financing/direct financial support	Expansion of financing channels	Financing constraints	Alleviating corporate financing constraints and reducing corporate agency costs
Yin, X.; Wang, D.; Lu, J.; Liu, L.	Does green credit policy promote corporate green innovation? Evidence from China	Implementation of Green Credit Policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	Financing constraints	Increased financial cost for green credit-restricted
Lian, J.; Huang, X.; Wu, X.	How green bonds promote firms’ green collaborative innovation?	Green bonds	Financial support	Market-based financing	Increasing more social capital to invest in the ecological industry	Financing constraints	Alleviating corporate financing constraints
Yang, J.; Chen, H.; Jin, H.; Jiang, Y.	Promoting or inhibiting? The impact of supporting policy for resource-exhausted cities on corporate green technology innovation: Evidence from China	Supporting policy for resource-exhausted cities (SPREC)	Policy guidance	Policy incentives	The increased in the proportion of fixed assets, the augmented of rent-seeking costs, and the suppression of R&D expenditures	Financing constraints	Accelerating financing constraints in resource-exhausted cities
Bai, R; Lin, B.	Green finance and green innovation: Theoretical analysis based on game theory and empirical evidence from China	Establishment of the pilot zones for green finance reform	Policy-guidance	Policy incentives	Improving firms’ risk-taking level	—	—
Yu, C. H.; Wu, X. Q.; Zhang, D. Y.; Chen, S.; Zhao, J. S.	Demand for green finance: Resolving financing constraints on green innovation in China	Green finance	—	—	—	Financing constraints	Alleviating corporate financing constraints
Ji, M. C.; Zhang, X.	Assessing the Impacts and Mechanisms of Green Bond Financing on the Enhancement of Green Management and Technological Innovation in Environmental Conservation Enterprises	Green bond	Financial support	Market-based financing	Increasing more social capital to invest in the environmental protection enterprises	Financing constraints	Alleviating corporate financing constraints
Ren, P. H.; Cheng, Z. H.; Dai, Q. L	Can green bond issuance promote enterprise green technological innovation?	Green bond	Financial support	Market-based financing	Increasing more social capital to invest in the ecological industry	Green regulatory & Financing constraints	Strengthen environmental regulation & alleviating corporate financing constraints
Wang, M. L.	Effects of the green finance policy on the green innovation efficiency of the manufacturing industry: A difference-in-difference model	Implementing the green finance policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	—	—
Cecere, G.; Corrocher, N.; Mancusi, M. L.	Financial constraints and public funding of eco-innovation: Empirical evidence from European SMEs	Public funding	Financial support	Market-based financing	Market-based financing	Financing constraints	Alleviating corporate financing constraints
Liu, C.; Xiong, M. X.	Green finance reform and corporate innovation: Evidence from China	established pilot zones for green finance reform	Policy guidance	Policy incentives	Increased innovation input and foreign investment	Financing constraints	Decreased financing cost
Wang, X. Y.	Research on the impact mechanism of green finance on the green innovation performance of China’s manufacturing industry	Green finance	Policy guidance	Policy-driven allocation of financial resources	Expansion of financing channels	—	—
Lin, B. Q.; Pan, T.	The impact of green credit on green transformation of heavily polluting enterprises: Reverse forcing or forward pushing?	The implementation of green credit policy	Policy guidance	Policy-driven allocation of financial resources	Optimize the allocation of funds	Financing constraints	Restricting bank loans, improving financing constraints in nongreen credit enterprises
Hua, Y.; Sun, W. Z.; Zhao, D. N.	The path towards sustainable finance: Venture capital and air pollution in China	Venture capital	Financial support	Market-based financing	Increasing monetary capital	—	—
Laachach, A.; Ettahri, Y.	The effects of organizational learning on innovation and performance of venture capital-backed firms: The moderating effect of syndication	Venture capital	Financial support	Market-based financing	Increasing monetary capital	—	—
Hossain, M. R.; Rao, A.; Sharma, G. D.; Dev, D.; Kharbanda, A.	Empowering energy transition: Green innovation, digital finance, and the path to sustainable prosperity through green finance initiatives	Digital finance	Financial support	Market-based financing	Impacting on the green finance, and promoting green innovation	Financing constraints	Alleviating financing constraints, particularly for small and medium-sized enterprises (SMEs)
Peiró-Signes, Á.; Díez-Martínez, I.; Segarra-Oña, M.	The drivers of cooperation for innovation and the role of environmental orientation	Public financing	Policy guidance	Policy incentives	Cooperation in innovation driving by public financing, environmental and social innovation orientation, and commitment to innovation	—	—
Kirikkaleli, D.; Adebayo, T. S.	Political risk and environmental quality in Brazil: Role of green finance and green innovation	Green investment	Policy guidance	Policy incentives	Positive relationship between political risk, green finance, green innovation, and environmental quality	—	—
Manigandan, P.; Alam, M. S.; Murshed, M.; Ozturk,I.; Altuntas, S.; Alam, M. M.	Promoting sustainable economic growth through natural resources management, green innovations, environmental policy deployment, and financial development	Financial development	Policy guidance	Policy incentives	Financial developmentpositively impact sustainable economic growth	—	—
Amendolagine, V.; Hansen, U. E.; Lema, R.; Rabellotti, R.; Ribaudo, D.	Do green foreign direct investments increase the innovative capability of MNE subsidiaries?	Green foreign direct investment (Green FDI)	Financial support	Direct financial support	Green FDI positively influences the number and quality of green patents in MNE subsidiaries	—	—
Tingbani, I.; Salia, S.; Hussain, J. G.; Alhassan, Y.	Environmental tax, SME financing constraint, and innovation: Evidence from OECD countries	Environmental tax	Policy guidance	Policy incentives	Increasing in environmental tax leadsto a decrease in SME innovation	Financing constraints	Alleviating financing constraints
De Haas, R.; Popov, A.	Finance and green growth	Stock markets	Financial support	Market-based financing	Stock markets reallocate investment toward energy-efficient sectors	—	—
Bendig, D.; Kleine-Stegemann, L.; Schulz, C.; Eckardt, D.	The effect of green startup investments on incumbents’ green innovation output	Corporate Venture Capital (CVC) Investment	Financial Support	Market-Based Financing	Green CVC investments positively impact incumbents’ green innovation output	—	—
Amendolagine, V.; Lema, R.; Rabellotti, R.	Green foreign direct investments and the deepening of capabilities for sustainable innovation in multinationals: Insights from renewable energy	Green Foreign Direct Investment (GFDI)	Financial Support	Market-Based Financing	Green FDIs promoting green innovation	—	—
Bellucci, A.; Fatica, S.; Georgakaki, A.; Gucciardi, G.; Letout, S.; Pasimeni, F.	Venture Capital Financing and Green Patenting	Venture Capital (VC) Financing	Financial Support	Market-Based Financing	Increasing monetary capital	Financing constrains	Alleviating financing constraints
Tchórzewska, K. B.; Garcia-Quevedo, J.; Martinez-Ros, E.	The heterogeneous effects of environmental taxation on green technologies	Environmental taxation and public financing	Policy guidance	Policy incentives	Combining low taxation with public financing promoting green technologies	—	—

Table 3.

Theory and Type of Business.

Author	Title	Region	Theory/model used	Type of business
Wang, R.; Ye, L.; Fang, Y.	How does green credit policy affect innovation efficiency of heavily polluting firms? Evidence from a quasi-natural experiment in China	China	Difference-in-difference (DID) model	Heavily polluting firms (HPFs)
Wu, R.	Innovation or imitation? The impacts of financial factors on green and general research and development	Global	The theory of economic development	Not specified
Xie, Q.; Zhang, Y.; Chen, L.	Does green credit policy promote innovation: A case of China	China	Difference-in-difference (DID) model	Not specified
Ren, X.; Xia, X.; Taghizadeh-Hesary, F.	Uncertainty of uncertainty and corporate green innovation—Evidence from China	China	Panel regression model	Not specified
Chi, Y.; Hu, N.; Lu, D.; Yang, Y.	Green investment funds and corporate green innovation: From the logic of social value	China	The Stakeholder Theory & The Enterprise Sustainable Competitive Advantages Theory	Polluting firms
Zhang, W.; Luo, Q.; Zhang, Y.; Yu, A.	Does green credit policy matter for corporate exploratory innovation? Evidence from Chinese enterprises	China	Propensity score matching and difference-in-differences model (PSM-DID)	Green credit-restricted industries
Zhou, K.; Tao, Y.; Wang, S.; Luo, H.	Does Green Finance Drive Environmental Innovation in China?	China	Not specified	Not specified
Li, Q.; Zhou, R.; Xiong, J.; Wang, Y.	Rushing through the clouds, or waiting to die? The effect of the green credit policy on heavily polluting firms	China	The Stakeholder Theory/difference-in-difference (DID) model	Heavily polluting firms (HPFs)
Gu, X.; Tian, Z.	Does the green credit policy promote the technological innovation of clean energy enterprises? Empirical evidence from China	China	Difference-in-difference (DID) model	Clean energy enterprises
Jia, J.; He, X.; Zhu, T.; Zhang, E.	Does green finance reform promote corporate green innovation? Evidence from China	China	PZGFRI model & Propensity score matching-difference-in-difference (PSM-DID) model	Not specified
Lin, B.; Xie, Y.	Driving Green Technology Innovation in Renewable Energy: Does Venture Capital Matter	China	Regression model	Renewable energy enterprises
Xiang, X.; Liu, C.; Yang, M.	Who is financing corporate green innovation?	China	Poisson model	Not specified
Wang, F.; Ma, J.; Liao, C.	Capital market opening up and corporate green technology innovation: Evidence from China’s Stock Connect program	China	Difference-in-difference (DID) model	Not specified
Zhang, T.	Can green finance policies affect corporate financing? Evidence from China’s green finance innovation and reform pilot zones	China	Difference-in-difference (DID) model	Not specified
Feng, G.-F.; Niu, P.; Wang, J.-Z.; Liu, J.	Capital market liberalization and green innovation for sustainability: Evidence from China	China	Difference-in-difference (DID) model	Not specified
Peng, W.; Xiong, L.	Managing financing costs and fostering green transition: The role of green financial policy in China	China	Two-sector model	Not specified
Zhang, X.; Song, Y.; Zhang, M.	Exploring the relationship of green investment and green innovation: Evidence from Chinese corporate performance	China	Negative binomial distribution model	Not specified
Yin, X.; Wang, D.; Lu, J.; Liu, L.	Does green credit policy promote corporate green innovation? Evidence from China	China	Difference-in-difference (DID) model	Green credit-restricted firms
Lian, J.; Huang, X.; Wu, X.	How green bonds promote firms’ green collaborative innovation?	China	Difference-in-difference (DID) model	Not specified
Yang, J.; Chen, H.; Jin, H.; Jiang, Y.	Promoting or inhibiting? The impact of supporting policy for resource-exhausted cities on corporate green technology innovation: Evidence from China	China	Difference-in-difference (DID) model	Resource-exhausted cities
Bai, R.; Lin, B.	Green finance and green innovation: Theoretical analysis based on game theory and empirical evidence from China	China	The dynamic game model/differences-in-differences model (DID)	Not specified
Yu, C. H.; Wu, X. Q.; Zhang, D. Y.; Chen, S.; Zhao, J. S.	Demand for green finance: Resolving financing constraints on green innovation in China	China	Two-stage least squares (2SLS) regression model	Not specified
Ji, M. C.; Zhang, X.	Assessing the Impacts and Mechanisms of Green Bond Financing on the Enhancement of Green Management and Technological Innovation in Environmental Conservation Enterprises	China	Theories of green management (GM) and technological innovation	Environmental protection enterprises
Ren, P. H.; Cheng, Z. H.; Dai, Q. L.	Can green bond issuance promote enterprise green technological innovation?	China	Multi-time point Difference-in-Differences (PSM-DID)	Not specified
Wang, M. L.	Effects of the green finance policy on the green innovation efficiency of the manufacturing industry: A difference-in-difference model	China	Difference-in-difference (DID) model/SBM–DEA model	The manufacturing industry
Cecere, G; Corrocher, N; Mancusi, M. L.	Financial constraints and public funding of eco-innovation: Empirical evidence from European SMEs	European	Not specified	Small- and medium-sized enterprises
Liu, C; Xiong, M. X.	Green finance reform and corporate innovation: Evidence from China	China	Difference-in-difference (DID) model	Not specified
Wang, X. Y.	Research on the impact mechanism of green finance on the green innovation performance of China’s manufacturing industry	China	The structural equation model	The manufacturing industry
Lin, B. Q.; Pan, T.	The impact of green credit on green transformation of heavily polluting enterprises: Reverse forcing or forward pushing?	China	Difference-in-difference (DID) model	Heavily polluting enterprises (HPEs)
Hua, Y; Sun, W. Z.; Zhao, D. N.	The path towards sustainable finance: Venture capital and air pollution in China	China	Two-way fixed-effects model	Not specified
Laachach, A; Ettahri, Y.	The effects of organizational learning on innovation and performance of venture capital-backed firms: The moderating effect of syndication	Morocco	organizational learning (OL) theory & partial least squares structural equation modeling (PLS-SEM).	Not specified
Hossain, M. R.; Rao, A.; Sharma, G. D.; Dev, D.; Kharbanda, A.	Empowering energy transition: Green innovation, digital finance, and the path to sustainable prosperity through green finance initiatives	Global (15 countries)	Quantile regression; Entropy weight method	General firms, SMEs
Peiró-Signes, Á.; Díez-Martínez, I.; Segarra-Oña, M.	The drivers of cooperation for innovation and the role of environmental orientation	Spain	Machine learning analysis techniques	Small and medium-sized enterprises (SMEs)
Kirikkaleli, D.; Adebayo, T. S.	Political risk and environmental quality in Brazil: Role of green finance and green innovation	Brazil	Dynamic ARDL model	Not specified
Manigandan, P.; Alam, M. S.; Murshed, M.; Ozturk, I.; Altuntas, S.; Alam, M. M.	Promoting sustainable economic growth through natural resources management, green innovations, environmental policy deployment, and financial development	India	Fourier Toda Yamamoto test	Not specified
Amendolagine, V.; Hansen, U. E.; Lema, R.; Rabellotti, R.; Ribaudo, D.	Do green foreign direct investments increase the innovative capability of MNE subsidiaries?	Global	Negative binomial regression model	Multinational enterprises (MNEs) and their subsidiaries
Tingbani, I.; Salia, S.; Hussain, J. G.; Alhassan, Y.	Environmental tax, SME financing constraint, and innovation: Evidence from OECD countries	24 OECD countries	Resource-based View (RBV)/Fixed Effects Panel Regression & 2SLS Instrumental Variable Approach	Small and medium enterprises (SMEs)
De Haas, R.; Popov, A.	Finance and green growth	Global (48 countries)	endogenous growth theory	Carbon-intensive industries
Bendig, D.; Kleine-Stegemann, L.; Schulz, C.; Eckardt, D.	The effect of green startup investments on incumbents’ green innovation output	United States	Absorptive Capacity Theory/Zero-Inflated Negative Binomial Model (ZINB)	Large U.S. firms (S&P 500)
Amendolagine, V.; Lema, R.; Rabellotti, R.	Green foreign direct investments and the deepening of capabilities for sustainable innovation in multinationals: Insights from renewable energy	Global	Propensity Score Matching (PSM) and Difference-in-Differences (DID)	Multinational enterprises (MNEs) in the renewable energy sector
Bellucci, A.; Fatica, S.; Georgakaki, A.; Gucciardi, G.; Letout, S.; Pasimeni, F.	Venture Capital Financing and Green Patenting	EU-27 andthe UK	Probit Model, Propensity Score Matching (PSM)	Equity-backed firms
Tchórzewska, K. B.; Garcia-Quevedo, J.; Martinez-Ros, E.	The heterogeneous effects of environmental taxation on green technologies	Spain	Propensity score matching (PSM); Categorical treatment matching	Manufacturing and mining firms

Synthesis the Results

Theme 1: Financial support

This theme explored financial support a key channel through which green finance influences corporate green innovation. Among the 18 articles contributing to this theme, 3 focus on direct financial support, such as government subsidies, while the remaining 15 discuss market-based financing, including green bonds, green credit, and venture capital. Financial support plays a crucial role in alleviating financing constraints, optimizing capital allocation, and enhancing firms’ capacity to invest in green innovation.

Corporate financing can be broadly categorized into internal and external financing (Xiang et al., 2022). Due to the high risks associated with green innovation, investments in this area typically require higher risk premiums compared to conventional investments (Chi et al., 2023). External financing has become a vital source of funding for corporate research and development (R&D), particularly for green innovation (Zhang, Luo, et al. 2023). As a key external capital provider, green finance plays a crucial role in supporting sustainable business investment by optimizing fund allocation, leveraging financial market advantages, and mitigating investment risks.

Green finance channels capital through a variety of financial instruments, which can be broadly classified into direct financial support and market-based financing. Direct financial support provides immediate funding to enterprises, reducing financial burdens and incentivizing green innovation (Xiang et al., 2022). In contrast, market-based financing enhances firms’ access to diverse financial resources, encourages long-term investment, and facilitates the efficient allocation of green financial capital (Lian et al., 2024). These financing mechanisms collectively foster corporate green innovation by improving investment returns, reducing financial risks, and incentivizing sustainable technological advancements (Chi et al., 2023).

Direct Financial Support

Direct financial support plays a pivotal role in promoting corporate green innovation by providing immediate funding that reduces financial barriers to investment in sustainable technologies. Such support includes government subsidies, green investment funds, and other publicly funded initiatives that directly allocate capital to environmentally friendly projects (Zhang, Song, & Zhang, 2023). Government subsidies, in particular, help mitigate financial risks associated with green innovation by lowering R&D costs and incentivizing firms to engage in long-term sustainable development. Additionally, these subsidies enhance firms’ credibility, signaling their commitment to green transformation, which can attract further investment from private and institutional investors (Xiang et al., 2022). Also, studies have found that green foreign direct investment (FDI) enhances the innovative capabilities of multinational enterprise (MNE) subsidiaries, with this effect being more pronounced in less developed countries (Amendolagine et al., 2023).

Market-Based Financing

Market-based financing refers to financial resources obtained through capital markets, where firms raise funds by issuing securities such as bonds and equity, rather than relying on internal financing or direct government support. Existing literature frequently highlights key market-based financing instruments that support corporate green innovation, including green bonds, green equity financing, cross-border investment channels such as the Shanghai-Hong Kong Stock Connect, and green investment funds (Wang, Ma, & Liao, 2023). Additionally, research has shown that green startup investments not only foster the green innovation capacity of startups but also increase green patent output among large firms through corporate venture capital (CVC) (Bendig et al., 2022).

These mechanisms expand firms’ access to external capital, alleviate financing constraints, and facilitate long-term investments in sustainable technologies. By providing stable and diversified funding sources, market-based financing enhances firms’ ability to invest in green R&D, renewable energy projects, and environmentally friendly technologies. Additionally, it promotes investor confidence in sustainable businesses, encouraging further private sector participation in green innovation. Through efficient capital allocation and risk-sharing mechanisms, market-based financing accelerates the development and commercialization of green technologies, ultimately fostering a low-carbon and sustainable economic transition (Hua et al., 2023).

Theme 2: Policy Guidance

A total of 21 articles were submitted to this theme. Additionally, three sub-topics fall under this main topic: financial resource allocation, policy uncertainty, and policy incentives. These policy mechanisms collectively shape firms’ access to financial resources, influence their strategic decision-making, and create an enabling environment for green innovation. The following sections elaborate on each sub-theme in detail, starting with financial resource allocation.

Financial Resources Allocation

Nine studies explore how financial policies, particularly the green credit policy (GCP), influence capital allocation for green innovation. Unlike market- or command-based environmental regulations, this policy internalizes pollution costs by restricting financing to heavily polluting industries while channeling funds toward environmentally responsible enterprises (Zhang, Luo, et al. 2023). Such financial constraints hinder polluting firms but simultaneously incentivize renewable energy companies to advance green innovation (Xie et al., 2022) Wang, Ye, & Fang (2023) found that limited access to external funding forces polluting firms to rely on internal capital, reducing their innovation efficiency, whereas clean energy firms benefit from improved financing conditions (Gu & Tian, 2023). However, some scholars argue that restricting credit availability for high-emission industries can act as a catalyst for industrial upgrading and transformation, ultimately encouraging innovation (M. L. Wang, 2023). Additionally, firms with strong environmental performance are more likely to secure long-term, low-interest loans, enhancing their ability to manage financial risks and invest in green technologies (W. Zhang et al., 2023).

Policy Uncertainty

This theme describes the possible negative impacts of implementing green finance policies. Only one article examined this theme. Uncertainty exists when the necessary information to forecast potential future changes is insufficient or nonexistent. This implies that the probability distribution of an event’s outcome is unpredictably determined (Watkins & Knight, 1922). As policy uncertainty increases, the macroeconomic environment becomes more unpredictable, resulting in a significant decline in output and investment as well as a postponement of business operators’ decisions regarding R&D and innovation. Consequently, this impedes enterprises’ pursuit of green innovation. Rising uncertainty also weakens investor confidence, shaping corporate financial strategies and discouraging long-term investments in sustainable projects (X. Ren et al., 2023). Moreover, green finance policies, particularly green credit regulations, contribute to this uncertainty by restricting financing for polluting firms without providing clear alternative funding mechanisms. This exacerbates financial constraints, reduces firms’ willingness to invest in green innovation, and ultimately weakens the intended impact of green finance on corporate sustainability (Yang et al., 2023). Addressing these challenges requires more stable and transparent policy frameworks to minimize uncertainty and enhance firms’ confidence in pursuing long-term green investments.

Policy Incentives

Exclusive reliance on market mechanisms to allocate green financial capital to green enterprises has resulted in minimal results. This is because the return on investment in green financial products has not been able to adequately account for environmental costs, and the additional risk associated with long-term investments has not been adequately rewarded. As a result, the share of green finance in the financial industry remains relatively minuscule, particularly in emerging countries (Bai and Lin, 2024). Nevertheless, given the robust growth of the green industry, governments must implement a range of strategies to facilitate the advancement of green finance, aligning it with the need for capital to support the transition toward a greener economy. Green financial policies specifically aim to encourage green finance by utilizing obligatory laws to incentivize green innovation. The incentive function of financial policies encompasses two key elements: first, policy incentives to encourage green innovation among green enterprises, such as the establishment of a green finance pilot zone, the implementation of a green credit policy and supporting policy for resource-exhausted cities, and improving capital market opening up and liberation. Establishing a green finance pilot zone policy and the implementation of a green credit policy could increase the financing scale of green enterprises, reduce loan costs, increase investment in innovation, relieve financing constraints, optimize credit resource allocation, and guide government subsidies, which could stimulate green innovation and improve the market value of enterprises (C. Liu and Xiong, 2022). On the other hand, government policies also play a role in compelling polluting firms to adopt greener practices. Regulatory pressures push these firms to increase R&D investments in environmentally friendly technologies, thereby accelerating their transition toward sustainability (X. Wang, 2022). Specifically, green credit policies support corporate transformation by expanding access to bank loans, promoting technological innovation, and increasing environmental protection expenditures. Conversely, non-green credit enterprises often face restricted access to bank loans, heightened financing constraints, and increased information disclosure requirements, which further encourage them to shift toward greener business practices (Lin and Pan, 2024).

Theme 3: Financial Constraints

When companies innovate, they confront two financing constraints. First, Xiang et al. (2022) emphasize that innovative firms’ high risk and capital intensity make it difficult to get external finance. Innovation can only be financed internally, yet management and operations affect cash flow. Beladi et al. (2021) find that limited funding hurts innovation. Second, innovative enterprises have limited finance, and creative activities increase operational risks and future rewards for organizations (Shi et al., 2022; Xiang et al., 2022). High finance costs increase payback pressure and liquidity risk, creating a vicious cycle. To maintain production and operations, businesses have decreased innovation due to budget constraints (Z. Chen et al., 2023). Enterprise innovation is hampered by funding constraints. Continuous enterprise innovation is an investment strategy. External finance constraints impose information mismatch and substantial investment risks on this behavior (Ji & Zhang, 2023). Business innovation investments are large and long-term. However, information asymmetry and investment concerns sometimes hinder innovation. These issues limit businesses’ access to external financing, which hinders innovation (Yu et al., 2021). Any barrier to a company’s innovation investment is a funding constraint. Insufficient capital stocks, illiquid assets, excessive dependency on loans, limited credit, or incapacity to issue equity may produce this limitation (Wu, 2023). Many studies link finance restrictions to innovation. They argue that increasing green finance reduces funding limitations, encouraging enterprises to invest more in environmental R&D, which improves green innovation (Zhang, Song, & Zhang, 2023).

Green finance improves the external funding environment for green enterprises and reduces their financial limitations. Green enterprises with financing constraints have trouble getting outside capital. Green firms can get large external capital from green finance. Strategic investment in green financial resources boosts these companies’ cash flow. This overcomes expensive external finance and fund acquisition issues. It also eases financial restraints on green businesses and promotes sustainable innovation (X. Wang, 2022). However, heavily contaminated firms will face greater funding challenges, forcing them to become environmentally friendly.

Green investment funds analyze investment prospects and encourage investors to discuss a company’s green innovation potential. This reduces information gaps between enterprises and investors and reduces green innovation project financing constraints. Instead, the GIF’s investment shows the firm’s commitment to green innovation (Chi et al., 2023). The Green Credit Policy (GCP) can help companies innovate by reducing financial constraints, especially those with strong innovation skills. Green innovation is enabled by the GCP’s long-term, low-risk support for firms with low social and environmental hazards (Yin et al., 2023). Capital market liberalization and public fund incentives reduce financial barriers and improve information disclosure, supporting green innovation (Cecere et al., 2020). Green bonds can assist cooperative innovation organizations overcome financial constraints by providing long-term, affordable funding for green ideas. This consolidates resources, encouraging innovation cooperation and improving firms’ sustainable collaborative innovation (Lian et al., 2024).

Polluting or highly leveraged ratio enterprises face financing limits and green innovation barriers with green finance. Green finance hurts enterprises’ inventiveness. The mechanism shows that credit financing costs help the green credit policy boost company innovation (Xie et al., 2022). By restricting enterprises’ financing for harmful projects, the green credit policy indirectly raises their costs. This encourages businesses to use green technologies and other eco-friendly practices (Yu et al., 2021). High-leverage companies are especially affected by the green credit scheme. Following a green credit policy, enterprises with high debt leverage can profit more from innovation (Yu et al., 2021). Increased local government debt for local enterprises’ green operations worsens corporations’ financing limitations, raises financing costs, and encourages “short-term debt for long-term investment.” This hinders green innovation and increases financial risks (Qu & Cheung, 2023).

Theme 4: Term Restructuring

The second mediating function is restructuring. Green R&D investments typically exhibit long-term maturity and significant risk (Z. Chen et al., 2023). When the ratio of short-term debt is excessively large and the research and development cycle is lengthy, preventing the immediate monetization of results will lead to challenges in repaying short-term debt, which can hamper the motivation for innovation in environmentally friendly enterprises (Lian et al., 2024). Thus, it is essential for businesses to strategically align external funding cycles with their R&D expenditure. A single article elucidates this topic. The institutional framework of green finance seeks to enhance the maturity profile of external funding for green firms by increasing their share of long-term debt. This ensures that enterprises have sufficient long-term capital for R&D investments and safeguards financial support for green innovation R&D. Thus, green firms can enhance their maturity structures and foster green innovation by securing external financing from green finance (Peng & Xiong, 2022).

Discussion

Green finance plays a crucial role in fostering corporate green innovation by providing essential financial resources and policy support. This study categorizes its impact into direct and indirect pathways: financial support, policy guidance, financing constraints, and term restructuring. By synthesizing the existing literature, we provide a comprehensive discussion on the mechanisms through which green finance influences corporate green innovation, the challenges faced by green finance instruments, the role of policy uncertainty, and the broader theoretical and managerial implications of our findings.

Firstly, Direct financial support, such as government subsidies and green investment funds, provides immediate funding to enterprises, reducing financial constraints and incentivizing long-term investment in sustainable development. These subsidies lower R&D costs, mitigate investment risks, and signal firms’ commitment to green transformation, which can further attract private and institutional investors. Additionally, FDI in green projects has been shown to enhance the innovative capabilities of multinational enterprises, particularly in less developed regions. On the other hand, market-based financing of green credit, green bonds, and green equity financing enables firms to access external capital, alleviating funding constraints and fostering investments in sustainable technologies. For instance, green credit policies provide preferential loan terms for environmentally responsible firms, thereby reducing financing costs and encouraging green investments (Li et al., 2023). Green bonds, as dedicated financing instruments, offer long-term, stable funding that supports R&D in green technologies and enhances innovation efficiency (Lian et al., 2024; P. Ren et al., 2024). Green equity financing, including venture capital and stock market financing, further facilitates green innovation by attracting investors interested in sustainable development (Laachach & Ettahri, 2023). These instruments collectively optimize capital allocation and drive the transformation toward green industries.

Green financial policies foster green innovation by encouraging and mandating green funding. Green finance regulations encourage corporate green innovation by mandating financial institutions to limit their support for polluting companies and encouraging the market to invest in green companies (Ma et al., 2023). Another encouraging strategy, such as financial support, tax incentives, government subsidies, etc., directly lowers firm costs and encourages green enterprises to innovate (Xu et al., 2023). The majority of policy research on corporate green innovation focuses on credit policy, while government subsidies and tax policies have been neglected.

Indirectly, green finance influences corporate green innovation by alleviating financing constraints and optimizing firms’ capital structure. Green financial policies channel funds toward eco-friendly enterprises while restricting capital access to polluting industries, thus incentivizing firms to adopt cleaner technologies (Ma et al., 2023). Additionally, the maturity structure of financing is a key determinant of innovation success. Short-term debt often fails to support the long development cycles of green R&D, whereas long-term financing from green bonds and equity markets better aligns with the investment horizon required for green innovation (Peng & Xiong, 2022). This highlights the importance of restructuring financing terms to enhance firms’ capacity for sustained green investment.

Existing research employs various theoretical frameworks to examine the impact of green finance on corporate green innovation. The theory of economic development highlights that efficient allocation of financial resources fosters technological advancement and industrial upgrading, providing a foundation for green finance to support green innovation (Wu, 2023). Stakeholder theory and the theory of enterprise sustainable competitive advantage suggest that external policy pressures and market incentives drive firms to enhance environmental performance through green financial tools, thereby strengthening long-term competitiveness (Li et al., 2023). Theories of green management and organizational learning further indicate that policy guidance and financial support not only provide firms with essential resources but also facilitate knowledge accumulation and technological innovation, promoting sustainable development (Laachach & Ettahri, 2023). Additionally, many studies apply the difference-in-differences (DID) model to assess the causal effects of green finance policies, particularly in alleviating financing constraints, optimizing capital structure, and extending investment horizons. These theoretical perspectives collectively support the key findings of this study. Financial support mechanisms, such as government subsidies and diverse market-based financing tools, expand firms’ access to capital, enabling them to pursue green innovation while maintaining long-term sustainability. Policy guidance establishes regulatory incentives and market conditions that encourage investment in environmentally friendly technologies. Furthermore, green finance mitigates financing constraints and restructures debt maturity, enhancing firms’ ability to access long-term capital and sustain green innovation efforts.

While green finance supports green innovation, certain limitations hinder its effectiveness. Green credit, though widely used, often comes with high loan thresholds and strict approval conditions, limiting accessibility for SMEs and emerging green enterprises (Zheng et al., 2022). Green bonds, despite their potential for long-term financing, suffer from market segmentation, low yield rates, and a lack of standardized evaluation mechanisms, which hinder their widespread adoption (S. Zhang et al., 2021). Green equity financing, particularly venture capital, faces challenges related to information asymmetry, high risk, and stringent listing requirements, making it difficult for early-stage green firms to secure funding (Xiang et al., 2022). Addressing these limitations requires the development of more flexible financial instruments, improved regulatory frameworks, and incentives to enhance market participation in green finance. Moreover, mechanisms such as blended finance, public-private partnerships, and government-backed green funds could help bridge the financing gaps faced by green enterprises. However, existing research has primarily focused on green credit, green bonds, and green equity financing, while systematic studies on these emerging financing mechanisms remain limited. Therefore, future research should further explore the role of blended finance, public-private partnerships, and government-backed green funds, assessing their effectiveness and feasibility in easing financing constraints and promoting green innovation. Additionally, policymakers and financial institutions should pay closer attention to the practical application of these mechanisms, refining regulations and incentives to enhance their market viability and encourage sustainable investment.

Regarding policy uncertainty, fluctuations in green finance policies can create an unpredictable investment environment, discouraging firms from committing to long-term R&D projects. Policy instability increases financial risk, affecting investor sentiment and corporate decision-making. For example, X. Ren et al. (2023) found that uncertainty in green financial policies negatively influences green innovation by increasing firms’ financing constraints and delaying investment decisions. To mitigate these effects, policymakers should implement stable, long-term green finance policies that provide clear incentives for green investment and reduce uncertainty in financial markets. Additionally, establishing policy frameworks that offer transparency and predictability can help businesses plan long-term green investment strategies with greater confidence.

The impact of green finance on corporate green innovation varies across countries, shaped by differences in economic structures, policy instruments, financial systems, and market environments, leading to a certain degree of path dependence. In China, a state-led approach drives green innovation primarily through policy banks providing green credit and the establishment of green finance pilot zones (T. Zhang, 2023). In contrast, Europe relies on market-driven mechanisms, such as carbon trading markets, ESG investments, and green bonds, to incentivize corporate green innovation (Teixidó et al., 2019). In Brazil, while green finance and green innovation contribute positively to environmental quality, political risk poses challenges to policy implementation (Kirikkaleli & Adebayo, 2024). Similarly, India fosters green innovation and sustainable economic growth through a combination of natural resource management, environmental policies, and financial development (Manigandan et al., 2024). Moreover, studies on OECD countries indicate that environmental taxation has a heterogeneous impact on green technology adoption, with only higher tax levels proving effective in stimulating green innovation (Tchorzewska et al., 2022).

These findings suggest that while green finance serves as a catalyst for corporate green innovation worldwide, its implementation and effectiveness are shaped by each country’s institutional framework, market maturity, and policy execution capacity. Consequently, the pathways through which green finance influences corporate green innovation exhibit path dependence, forming distinct national models of green finance development. Nevertheless, despite these variations, the core mechanisms—financial support, policy guidance, financing constraints, and term restructuring—remain consistent across different economies. However, their impact varies depending on the regulatory environment, institutional structures, and financial market conditions unique to each country.

A well-structured and stable green finance framework is essential for fostering long-term green investment. For policymakers, a stable and well-structured green finance framework is essential to promote long-term green investment. Ensuring consistency in policy implementation can reduce uncertainty and encourage sustained corporate engagement in green innovation. Additionally, diversifying green finance instruments, improving transparency in green bond markets, and enhancing credit access for SMEs can significantly boost green investment. Governments should also consider targeted subsidies, tax incentives, and regulatory support to encourage businesses to prioritize green innovation.

For corporate managers, understanding the strategic use of green finance instruments can optimize investment decisions. Firms should actively seek market-based financing options such as green bonds and equity financing to secure long-term capital for green R&D. Moreover, strengthening environmental performance can enhance firms’ access to favorable financing terms, reducing capital costs and increasing competitiveness in the green economy. Managers should also engage in proactive policy monitoring to adapt their investment strategies to evolving regulatory landscapes, ensuring that they maximize available financial incentives while mitigating policy-related risks.

Limitations and Implication

This study provides a comprehensive analysis of how green finance promotes corporate green innovation by descripting key influencing factors. However, several limitations should be acknowledged. Initially, policy uncertainty is considered one of the influencing factors but is not deeply explored in terms of firms’ adaptive strategies. Firms may respond to policy uncertainty by delaying green investments, shifting innovation strategies, or seeking alternative funding channels. A deeper understanding of how firms navigate unstable policy environments could provide important insights for both financial institutions and policymakers. Furthermore, this study does not differentiate firms based on ownership structure (state-owned vs. private), industry characteristics (high-pollution vs. low-pollution), or firm size. These factors may shape how green finance affects corporate green innovation. Future research could incorporate firm-level heterogeneity to refine the understanding of green finance’s impact. Finally, this study does not explicitly explore the role of regulatory factors, such as carbon pricing and environmental regulations, which often act as moderating variables rather than direct drivers of corporate green innovation. Since regulatory mechanisms influence firms’ access to green financing, future research could examine how different regulatory environments interact with green financial instruments to enhance or constrain green innovation.

While the findings of the study highlight the critical role of green finance in promoting sustainable innovation, several gaps in the existing literature remain. Addressing these gaps can enhance the understanding of green finance’s effectiveness and inform future research and policy development. In terms of financial support, existing studies predominantly focus on market-based financing, while direct financial support mechanisms, such as government subsidies and targeted green investment funds, receive comparatively less attention. With the growing role of foreign direct investment (FDI) in green finance, future research could examine how multinational enterprises leverage green FDI to enhance the innovation capabilities of subsidiaries (Amendolagine et al., 2023). Furthermore, most research examines financial support from a macroeconomic perspective, emphasizing market liberalization and capital market efficiency rather than analyzing the distinct roles of various financial instruments in fostering green innovation. Future studies could explore how different financing tools, including direct government grants, green bonds, green equity, and blended financing mechanisms, contribute to corporate sustainability transitions. Regarding policy guidance, much of the literature underscores the benefits of green finance policies, but relatively few studies address policy uncertainty and its potential deterrent effects on long-term green innovation investments. Additionally, strategies for mitigating uncertainty and enhancing policy stability remain underexplored. Further research should investigate how firms adapt to regulatory volatility and identify mechanisms that can improve the predictability and effectiveness of green finance policies. In examining the indirect impact of green finance, prior studies overwhelmingly concentrate on financing constraints as the primary mediating factor, overlooking other key channels such as capital costs, R&D investment, and risk management. Future research could expand on these alternative mediators to develop a more holistic framework for understanding how green finance influences corporate innovation dynamics. Finally, green finance has the potential to expand firms’ access to financing, extend loan maturities, and reduce liquidity risks, thereby encouraging long-term green investments. However, the literature on how financial term structuring affects corporate green innovation remains limited. Future research should explore how aligning financing durations with the lifecycle of green projects can optimize investment efficiency and innovation outcomes. Beyond these firm-level mechanisms, future research should incorporate a global perspective to account for cross-country variations in green finance models. The impact of green finance on corporate innovation exhibits strong path dependence, shaped by economic structures, financial systems, and policy execution capacity.

Based on these implication, future research should explore additional dimensions of green finance’s impact on corporate green innovation. To facilitate further investigation, Table 4 presents key research themes and corresponding questions that could guide future studies.

Table 4.

Future Research Directions on Green Finance and Green Innovation.

Theme	Proposed questions for future research
Financial Support	How can financial support mechanisms be optimized to encourage corporate green innovation across different industries? What role do government subsidies and private funding play in sustaining long-term green initiatives? How do different financial instruments (e.g., green bonds, equity, FDI) vary in their impact on corporate green innovation? How does the impact of green finance on corporate green innovation vary across different emerging markets?
Policy Guidance	How do long-term policy commitments influence firms’ green innovation strategies? What policy mechanisms can minimize the negative impact of policy uncertainty on green financial investment? How does policy uncertainty affect firms’ willingness to invest in green innovation?
Financing Constraints	How do small and medium-sized enterprises (SMEs) benefit from green finance compared to large corporations? What additional financing barriers remain even after firms access green financial support? Besides financing constraints, what other mediating factors (e.g., capital costs, R&D investment, risk management) influence the relationship between green finance and corporate innovation?
Term Restructuring	How does the maturity structure of green financing affect firms’ long-term R&D strategies? What financial mechanisms can better align investment horizons with innovation cycles in capital-intensive green industries? What financing structures are most effective in reducing firms’ exposure to short-term liquidity risks while promoting long-term sustainability goals?

Conclusion

This study provides a comprehensive analysis of how green finance influences corporate green innovation, contributing to the growing body of research on sustainable finance and innovation. By categorizing its impact into financial support, policy guidance, financing constraints, and term restructuring, the study advances the theoretical understanding of green finance’s role in addressing financial barriers and optimizing investment structures for green innovation. The findings indicate that green finance facilitates corporate green innovation through direct and indirect mechanisms. Financial support in the form of green credit, bonds, and equity enhances firms’ access to external capital, while policy guidance ensures the efficient allocation of financial resources. Additionally, green finance mitigates financing constraints and restructures capital maturity, enabling firms to undertake long-term green R&D investments. However, challenges such as policy uncertainty and market inefficiencies may limit the effectiveness of green financial instruments.

To enhance the effectiveness of green finance in fostering corporate green innovation, policymakers should implement targeted measures in financial support, policy guidance, and financing mechanisms. (1) Governments and financial institutions should expand the issuance of long-term green bonds and increase low-interest green credit programs tailored to high-R&D firms. Additionally, establishing government-backed green investment funds can provide direct financial support to enterprises engaged in green technology development, reducing their reliance on short-term financing and enhancing financial stability for long-term innovation projects. (2) To reduce policy uncertainty, regulatory bodies should adopt long-term green finance roadmaps with clear, phased policy commitments. Implementing policy stability mechanisms, such as fixed-term green subsidies and tax incentives, can ensure that firms have confidence in long-term investment planning. Moreover, regulatory consistency should be reinforced through cross-ministry coordination to prevent abrupt policy shifts. Establishing a transparent evaluation framework for green finance policies can further enhance predictability and investor confidence. (3) Governance mechanisms also play a critical role in reinforcing the impact of green finance. Strengthening corporate environmental disclosure requirements and promoting third-party green certifications can improve transparency and investor trust in sustainable financing, which facilitates better access to green credit and investment, reducing financing constraints for firms pursuing green innovation. Incorporating sustainability metrics into corporate governance frameworks can encourage firms to align their long-term strategies with green finance objectives, ensuring more effective capital utilization. (4) Beyond traditional credit financing, policymakers should promote structured financial products like sustainability-linked loans and blended finance mechanisms while also increasing market flexibility and openness to encourage diverse financing channels. Developing innovative green financial instruments, such as securitized green assets and risk-sharing mechanisms, can help firms access a broader range of funding sources. Strengthening the secondary market for green bonds and facilitating cross-border green financial cooperation can further enhance capital flow efficiency in sustainable investments. (5) Finally, the effectiveness of green finance policies depends on regulatory consistency across different financial systems. Policymakers should work toward harmonizing green finance standards across jurisdictions, particularly in international markets, to reduce regulatory fragmentation and enhance cross-border green investment flows. A unified regulatory framework can facilitate smoother access to green financial instruments for firms operating across multiple markets, ensuring stable and predictable financing conditions. Strengthening global cooperation in green finance can further mitigate risks associated with policy discrepancies, ultimately fostering a more integrated and efficient sustainable investment ecosystem.

By implementing these measures, green finance can more effectively alleviate financing constraints, optimize capital allocation, and create a stable investment environment that supports sustained corporate green innovation and long-term sustainability goals.