Corporate management, green finance, and sustainability

The paper investigates how green finance and corporate management influence China’s composite sustainable development index (SDI) over 1990–2020. It situates the research within the historical arc from industrialization to the post-COVID push for sustainability, emphasizing that sustainable development integrates economic, social, and environmental dimensions. Capital scarcity for green projects, particularly in developing economies, constrains progress; green finance is posed as a solution by mobilizing instruments like green bonds and loans. Corporate management (sustainability-oriented governance and resource optimization) is also highlighted as pivotal for eco-innovation and responsible operations. China is chosen due to its high CO2 emissions, major fossil fuel use, ambitious goals (carbon peak by 2030, neutrality by 2060), and rapidly growing green finance market. The study’s objective is to quantify the short- and long-run impacts of green finance and corporate management on China’s SDI, comparing green monetary (finance market size) and green fiscal (green tax) policy effects, and controlling for sustainable power generation, FDI inflows, and poverty.

The literature is grouped into two strands. (1) Green finance and sustainability: Studies find green finance facilitates enterprise access to capital for green projects, enhances financial inclusion, and accelerates green innovation and R&D (Cui et al., 2020; Ronaldo & Suryanto, 2022; Yu et al., 2022; Huang et al., 2022; Ma et al., 2023; Mirza et al., 2023; Umar & Safi, 2023). Digital and IT-enabled green finance expands access to cheaper instruments, mediating progress toward sustainable targets. (2) Corporate management and sustainable development: Research shows corporate sustainability management improves innovation, social inclusion, environmental quality, and resource efficiency, aligning enterprise processes with sustainability goals and ESG practices (Stacchezzini et al., 2016; Dutta et al., 2016; Baumgartner & Rauter, 2017; Xia et al., 2020; Maia et al., 2022; Sanoran, 2023; Park, 2023). Gap: Prior work has not jointly examined green finance and corporate management effects on China’s composite SDI or contrasted green monetary versus fiscal policy within this context; this study addresses that gap.

Data: Annual China data, 1990–2020. Dependent variable: composite sustainable development index (SDI) integrating economic, social, and environmental indicators, computed by the authors drawing on Hickel (2020) and Hirai & Comim (2022). Key explanatory variables: green finance market size (GFIN; China Statistical Yearbook) and corporate management index (COR) calculated by the authors following Aliabadi et al. (2017). Controls: green tax revenues (GTAX; green fiscal proxy), sustainable power generation (SPGE), foreign direct investment inflows (FDII), and poverty ratio (POVRA; World Bank). All variables are log-transformed to estimate elasticities. Core specification: LSDI_t = a0 + a1 LGFIN_t + a2 LCOR_t + a3 LGTAX_t + a4 LSPGE_t + a5 LFDII_t + a6 LPOVRA_t + ε_t. Expected signs: positive for GFIN, COR, GTAX, SPGE; ambiguous for FDII; negative for POVRA. Empirical strategy: (1) Correlation matrix to check collinearity. (2) Unit root tests (ADF and PP) show a mix of I(0) and I(1) series. (3) ARDL bounds testing confirms long-run cointegration. (4) Long-run coefficients estimated via the ARDL approach (Charemza & Deadman, 1997); short-run dynamics via the error correction model (ECM), including the error-correction term ECM(−1). Diagnostics: Wald tests and Breusch–Pagan heteroscedasticity tests indicate no heteroscedasticity and adequate specification. Robustness: Re-estimation with carbon dioxide emissions (CO2) as the dependent variable to assess consistency of relationships with an adverse environmental outcome.

• Cointegration: ARDL bounds tests indicate a long-run relationship among variables. - Green finance (GFIN): A 1% increase in GFIN raises SDI by 0.31% (short run) and 0.69% (long run). - Corporate management (COR): A 1% increase in COR raises SDI by 0.16% (short run) and 0.29% (long run). - Green tax (GTAX): Negative and statistically significant/adverse effects on SDI in both horizons. - Sustainable power generation (SPGE): Positive and significant effects on SDI, with elasticities of about 0.20% (short run) and 0.75% (long run) for a 1% increase in SPGE. - Foreign direct investment (FDII): Negative impact on SDI in both short and long run, interpreted as FDI flowing into non-green projects. - Poverty (POVRA): Detrimental to sustainability; a 1% increase reduces SDI by about 0.24% (short run) and 0.43% (long run). - Long-run effects exceed short-run effects, indicating greater sensitivity of SDI to GFIN and COR over time. - Policy comparison: Green monetary policy (via green finance expansion) is more effective than green fiscal policy (via green tax) in this context. - Diagnostics confirm no heteroscedasticity; robustness tests using CO2 as the dependent variable support the reliability of the empirical framework.

The results address the core question by quantifying how green finance development and stronger corporate management improve China’s sustainable development performance. Green finance significantly expands access to green capital, enabling greater investment in clean technologies and projects, while corporate management enhances firms’ capacity to deploy resources efficiently and meet environmental and social responsibilities. Positive impacts are stronger over the long run, consistent with cumulative investment effects and governance improvements. The negative coefficient on green tax suggests current design and implementation may be insufficient or create unintended burdens without effectively steering firms toward lower emissions. The positive role of sustainable power generation underscores the centrality of clean electricity in raising SDI. Negative effects from FDI and poverty highlight the need to channel investment into green sectors and to address social inclusion for sustainability progress. Overall, findings support prioritizing green finance development and corporate sustainability management to achieve long-run sustainable outcomes, complemented by reforms in fiscal instruments and targeted social and energy policies.

The study contributes by constructing and analyzing China’s composite SDI alongside an author-derived corporate management index, and by jointly evaluating green monetary (finance) and fiscal (tax) proxies with relevant controls in an ARDL-ECM framework. Key contributions include evidence that green finance and corporate management substantially and increasingly improve SDI over time, while current green tax design, non-green FDI, and poverty hinder progress; sustainable power generation strongly supports SDI. Policy recommendations: accelerate digitalization of the green financial market (fintech, big data, cryptocurrency applications), expand poverty alleviation, reform green tax design and enforcement (rate setting, emissions-based assessment, transparent penalties), promote corporate sustainability management via awareness and education, attract foreign green investment, and further scale green electricity. Future research: assess COVID-19 impacts across Chinese provinces; incorporate expert and managerial perspectives; use scenario and futures methods to anticipate trends; and examine effects on all 17 UN SDGs to inform actionable policy.