The Configuration Effect of Green Financial Instruments on Environmental Innovation: A Fuzzy‐Set Qualitative Comparative Analysis

ABSTRACT Green financial instruments help achieve an effective interaction between financial activities and environmental protection, and encourage firms to engage in environmental innovation. This study uses a configuration perspective to investigate how the combined paths of various green financial instruments drive firms' environmental innovation. One hundred sixty‐one energy companies listed under China's A‐share system formed the research sample, and the fuzzy‐set qualitative comparative analysis method was used to analyze the data. The results show that there to be four paths that drive high‐level environmental innovation, that green futures contracts play a universal role in generating high‐level environmental innovation, and that “green futures contracts–green trusts” and “green futures contracts–green funds” are the combinations of green financial instruments that best promote high‐level environmental innovation within firms. This study adds to relevant research on the intersection of green finance and environmental innovation, and enriches the current understanding of what drives firms' environmental innovation.