Developing environmental sustainability policy – How financing and subsidies are influencing green innovation in mineral extraction industries in China

Abstract

Mineral extraction is regarded as a pollution-intensive industry and is confronted with multiple environmental sustainability challenges. This issue poses an existential crisis for mineral extraction due to continued global pressure to adopt more sustainable practices in their functioning. Despite its importance, there is a notable gap in the literature regarding how these companies encounter financial challenges, particularly in the context of high-risk, long development cycles, and the unique double externalities associated with green innovation. This research, leveraging panel data from 2016 to 2023, aims to fill this gap by examining whether Chinese mineral extraction companies demonstrate distinct preferences for specific financing sources and by evaluating the role of government in facilitating their green innovation activities. Our findings indicate that such companies utilize a mix of internal and external financing to support their green innovation projects. It is observed that the influence of external finances channels, namely government subsidies, equity financing and debt financing, on green innovation progressively weakens, a conclusion supported by multiple robustness checks. Furthermore, the study highlights the crucial role of government subsidies in motivating publicly listed companies to enhance their green innovation activities through debt and equity financing, thereby contributing to a more equitable and sustainable development paradigm in the Global South.