Jixin Dong, Lijun Zhao
Addressing escalating global climate challenges requires enhanced urban climate adaptability, an essential prerequisite for sustainable urban development. As a classic public good, the ecological environment conservation depends on public finance. However, environmental finance faces two core bottlenecks: insufficient funding and inefficient multi-sectoral coordination. To tackle these issues, China launched the Climate Adaptive City (CAC) policy in 2017. This study employs a Difference-in-Difference (DID) method to empirically demonstrate the policy’s significant positive impact on the effective implementation of environmental finance. Mechanism analysis further indicates that the policy achieves this by enhancing urban livability and increasing public transportation utilization. Heterogeneity analysis reveals considerable differences in policy efficacy among different city types and sizes. This research offers a novel perspective on policy-finance interactions. It establishes a decision-making framework for optimizing environmental financial allocation, supports the advancement of climate policy in China, strengthens urban climate adaptation capacity, and offers valuable empirical evidence for global climate adaptive city initiatives.