Green finance and brown firms along the chain: environmental gains, economic pains, and supply-chain transmission

Abstract Green finance has become a central lever for steering economies toward decarbonization. Leveraging China’s 2016 policy package— Guiding Opinions on Establishing a Green Financial System —as a quasinatural experiment, we implement a difference-in-differences design on an 11-year panel of A-share listed firms (2011–2021) to examine high-carbon enterprises (HCEs) through a supply-chain lens. The estimates show a clear environment–economy trade-off: the reform delivers sizable gains in environmental performance while depressing near-term economic outcomes, and these patterns are robust to a broad battery of sensitivity checks. Channel evidence indicates that firms respond along two complementary abatement paths: (i) front-end, process-integrated upgrades that yield incremental efficiency improvements upstream and (ii) capital-intensive end-of-pipe expansions that secure compliance in the short run. Mechanism tests further reveal that tighter green finance constraints crowd out R&D, lowering innovation output and, ultimately, total factor productivity. Heterogeneity analyses show that environmental benefits are stronger where supplier bases are more concentrated and supply chain finance capability is deeper; in these settings, the economic drag is attenuated. Taken together, the results highlight the dual consequences of green-finance policies for HCEs and their supply networks, offering actionable implications for regional green-finance practices, firm-level strategies that balance environmental targets with economic resilience, and the pursuit of high-quality growth in China’s high-carbon sectors.