Role of green finance and carbon accounting in achieving sustainability

The paper addresses climate change as a critical global challenge and positions sustainable development as a central pathway to mitigate environmental degradation while supporting economic and social well-being. It reviews the post-COVID-19 resurgence in resource use and CO2 emissions and highlights the need for effective policies and adequate capital to achieve sustainability goals. Green finance can close capital gaps by enabling access to transparent, stable funding for eco-friendly projects, while carbon accounting improves firms’ understanding of their emissions, supports transparent reporting, and informs green taxation and investor decisions. The study focuses on China due to its leading share of global CO2 emissions and its national commitments to peak carbon emissions by 2030 and achieve carbon neutrality by 2060. The research objective is to examine how green finance and carbon accounting affect the sustainable development index of manufacturing firms listed on the Shanghai Stock Exchange, thereby illuminating firm-level mechanisms linking financial strategies, environmental accountability, and sustainability outcomes in a major emitting economy.

Prior research identifies regulatory frameworks, institutional commitments, and cost reductions (often via digitalization) as essential to sustainability, while fossil fuel dependence, low sustainability literacy, and limited green project financing remain obstacles. Motivators include green fiscal policies, education, social initiatives, and waste management. A large body of work underscores the role of green finance—green loans, credit, and bonds—in enabling technological advancement, expanding renewables, and fostering sustainable growth by improving firms’ access to finance, supported by social awareness, clear regulation, and incentives. Studies also emphasize carbon accounting as key for quantifying emissions, guiding corporate environmental assessment, and informing green fiscal and monetary policies. Despite these insights, comprehensive firm-level evidence from China remains limited, motivating this study’s focus on the effects of green finance and carbon accounting on Chinese listed companies’ sustainable development.

Data and sample: Panel data for 500 manufacturing firms listed on the Shanghai Stock Exchange over 2010–2020 (selected based on data availability and use of carbon accounting). Variables: Dependent variable is the Sustainable Development Index (SUSDE), compiled per Zhang et al. (2021) from six dimensions: innovation-driven, structure upgrading, resource-intensive, environmental coordination, benefit optimization, and liberalization. Key independent variables: (i) Green finance proxied by received green facilities (RGF, million CNY), (ii) Carbon accounting (CACCO, dummy 0/1 indicating presence of a carbon accounting report). Controls: ESG investing (ESGI, million CNY), number of labor forces (LABOR), stock price (STOPRI, CNY), and resource consumption (RCON, CNY; water and electricity). Data sources: CSMAR for RGF, ESGI, LABOR, RCON; SSE for STOPRI; SUSDE compiled following Zhang et al. (2021). Many variables are analyzed in logs (prefix L). Econometric approach: (1) Stationarity testing via Augmented Dickey–Fuller (ADF) and Kwiatkowski–Phillips–Schmidt–Shin (KPSS) shows variables are I(1): non-stationary in levels, stationary in first differences. (2) Long-run relationship assessed via ARDL bounds test, indicating cointegration. (3) Long-run coefficients estimated using Fully Modified OLS (FMOLS). (4) Diagnostic testing includes a Wald test for heteroscedasticity. (5) Robustness check conducted by altering the dependent variable to R&D expenditure, re-estimating via FMOLS to verify sign and significance stability.

Stationarity and cointegration: ADF and KPSS indicate all series are non-stationary at level but stationary at first difference (I(1)). ARDL bounds test F-statistic = 5.843 exceeds upper critical bounds at conventional levels, confirming cointegration. Long-run FMOLS estimates (coefficient, p-value): CACCO 0.042 (0.011) positive and significant; LRGF 0.413 (0.044) positive and significant; LESGI 0.158 (0.009) positive and significant; LLABOR -0.351 (0.015) negative and significant; LSTOPRI 0.432 (0.074) positive, marginal significance; LRCON -0.193 (0.041) negative and significant. Interpretation: Carbon accounting adoption improves the sustainable development index; a 1% increase in received green facilities is associated with about a 0.41% increase in the index; ESG investments raise sustainability; larger labor forces correlate with lower sustainability (likely due to higher costs and resource use); higher stock prices are associated with better sustainability performance; higher resource consumption (water/electricity) reduces sustainability. Diagnostics: Wald/heteroscedasticity test indicates the model is appropriate (e.g., Chi-square = 39.053, p < 0.001). Robustness: Using R&D expenditure as the dependent variable yields consistent signs—CACCO 0.053 (0.001), LRGF 0.448 (0.032), LESGI 0.204 (0.064), LLABOR -0.110 (0.049), LSTOPRI 0.215 (0.066), LRCON -0.425 (0.058)—supporting the main findings.

Findings support the hypothesis that both carbon accounting and green finance promote firms’ sustainable development. Carbon accounting enhances transparency and managerial awareness of emissions, enabling targeted environmental actions and informing green taxation and investor decisions. Green finance eases access to capital for eco-friendly investments across production, logistics, and management, fostering technological upgrading and greener processes. Positive ESG effects indicate that broader social and environmental commitments align with improved sustainability outcomes. The negative association with labor size suggests potential inefficiencies and insufficient green skills or innovation within larger workforces, highlighting the need for workforce upskilling in green and digital competencies. Resource consumption’s negative impact underscores the centrality of efficient water and electricity management to sustainability. Stock price’s positive association implies that stronger market valuation and financial health can enable investments in sustainability, though statistical significance is weaker than for other drivers.

The study concludes that adopting carbon accounting systems and expanding access to green finance significantly enhance the sustainable development index of Chinese listed manufacturing firms. Control variables reveal that greater resource consumption and larger workforces hinder sustainability, while ESG investments and, to a lesser extent, higher stock prices support it. Policy recommendations include: promoting widespread adoption of corporate carbon accounting (with incentives), expanding and digitalizing green finance markets (leveraging fintech, blockchain, big data, AI), strengthening green taxation calibrated to emissions, standardizing corporate financial and sustainability reporting to facilitate green credit, advancing sustainable corporate management practices, and investing in green energy projects to reduce emissions and input costs. Future research should broaden sectoral coverage, assess COVID-19’s effects on green finance–sustainability linkages, use multi-criteria decision analysis to capture expert perspectives, and conduct cross-country comparisons of carbon accounting and green finance impacts.