Green transition under carbon peak pressure: beyond greenwashing

Achieving carbon peaking poses a significant challenge for China’s industrial economy, yet the associated policy pressure can catalyze enterprise upgrading. Using panel data on Chinese A-share listed manufacturing firms from 2015 to 2020, we estimate a two-stage least squares model with a Bartik instrument to identify the effect of regional carbon peaking pressure on firms’ green transformation. We find that carbon peaking pressure significantly promotes green transformation while also increasing greenwashing among some firms. Evidence on reduced firm-level carbon emissions and robustness checks that remove greenwashing firms indicate that substantive improvements constitute the primary response. Mechanism analyses point to two principal channels – innovation and digital transformation. Heterogeneity analyses show stronger effects among ESG laggards than leaders, attenuation in emissions trading system pilot jurisdictions, and larger impacts where government intervention capacity is higher. Together, the results highlight the effectiveness of trajectory-based target responsibility system regulation in driving firm-level decarbonization while underscoring the importance of administrative capacity and policy mix for maximizing impact.