Can Green Funds Improve Corporate Environmental and Financial Performance? Evidence from Chinese Listed Companies

Facing increasing global environmental pressures and China’s carbon emission targets, China is making the transition to a green economy. A key component of this transition lies in promoting corporate green transformation and sustainable development. Green funds are regarded as an important force in driving corporate sustainability. At the firm level, sustainability not only involves the fulfillment of environmental responsibilities, but also requires firms to maintain sound financial returns in the process. However, it remains unclear whether improvements in environmental performance driven by green funds are accompanied by better financial performance. This study aims to investigate how green fund shareholding, in terms of both shareholding ratio and volatility, affects corporate environmental and financial performance in China. Drawing upon a data sample of 2,277 non-financial listed companies from 2012 to 2021, the system Generalized Method of Moments (GMM) approach is employed to address potential endogeneity issues and provide robust estimates. Findings indicate that green fund shareholding ratio has no significant impact on corporate environmental performance, yet contributes to financial performance, suggesting that firms can receive financial returns through green funds, but such shareholdings are insufficient to drive environmental improvements. In contrast, green fund shareholding volatility positively affects both environmental and financial performance, indicating that active management or adjustments in green fund shareholdings can drive better overall corporate sustainability outcomes. These results highlight the comprehensive governance role of green funds and emphasize the importance of active fund oversight in promoting both environmental and financial sustainability in Chinese firms.