1. Introduction
Green innovation refers to the enhancement of products or processes to reduce environmental burdens or achieve sustainable development goals [
1,
2]. It is crucial for harmonizing economic growth with environmental protection [
3]. This mutually beneficial potential has garnered worldwide attention, prompting policymakers to allocate increasing amounts of public funds to stimulate the creation and diffusion of clean and sustainable technologies [
4]. For instance, in 2022, China’s Ministry of Science and Technology issued the Implementation Plan for Science and Technology to Support Carbon Peak and Carbon Neutrality (2022–2030). The plan emphasizes supporting a significant and sustained reduction in carbon dioxide emissions per unit of gross domestic product (GDP) and energy consumption per unit by building a low-carbon, zero-carbon, and carbon-negative technological innovation system. Green innovations, such as renewable energy technologies and cleaner process modifications, are essential technical routes and critical directions for reducing carbon emissions from industrial production processes. However, the high cost and risk associated with green technology make it challenging to achieve a direct short-term impact on financial performance [
5]. Enterprises need further incentives to engage in green technology innovation. Therefore, well-designed environmental regulatory policies are essential to guide firms toward adopting environmentally friendly production methods and eventually developing or adopting additional green technologies.
The well-known Porter hypothesis suggests that stringent but well-designed environmental regulations can stimulate technological innovation and create “innovation offsets” that exceed the costs associated with these regulations [
6]. Enterprises that apply green innovation in production processes can reduce dependence on traditional polluting production methods and effectively avoid environmental regulatory costs [
7]. Several theoretical and empirical papers have strongly supported the Porter hypothesis [
8,
9]. As a regularized environmental regulation with a long-term nature, environmental justice enhancement has received extensive research attention [
10,
11]. Gao et al. (2024) argued that environmental justice measures, represented by China’s environmental courts, significantly impact the quality of corporate green innovation [
12]. Increased judicial efficiency in environmental cases and the reduced likelihood of cooperation between local governments and polluting enterprises are essential mechanisms by which environmental courts influence green innovation. Zhou et al. (2023) and Tao et al. (2023) asserted that environmental courts force firms to innovate green technologies by raising public ecological concerns and increasing external monitoring pressure [
11,
13]. To further enhance research on environmental regulation and green innovation, this study uses the successive establishment of environmental courts by the Intermediate People’s Courts (IPCs) in Chinese prefecture-level cities as a quasi-natural experiment. We analyze the impact of environmental courts on green technology innovation by constructing a progressive difference-in-differences (DID) model using data from 280 prefectural-level cities in China and 485 listed firms in heavy pollution industries in Shanghai and Shenzhen A-shares from 2006 to 2019.
Four relevant findings emerge. (i) Establishing environmental protection courts can significantly enhance the efficiency of environmental pollution cases and the level of green technology innovation in pilot cities. It can also promote heavily polluting enterprises’ green innovation output. (ii) Environmental courts primarily induce green technological innovation in heavily polluting firms by exerting more substantial pressure for environmental legitimacy. Environmental tribunals increase the risk of external environmental litigation and the cost of violating the law faced by heavily polluting industries. Environmental courts also compel heavily polluting enterprises to increase environmental investments and gain environmental legitimacy through green technological innovation. (iii) In terms of industrial categories, the positive impact of environmental courts on corporate green innovation is more pronounced in water pollution-intensive industries. Compared with industries emitting air pollution, environmental pollution infringements in water pollution-intensive industries are more likely to be judicially forensic, and water-polluting firms face tremendous pressure for environmental legitimacy. (iv) In terms of regional characteristics, environmental courts’ promotional role in advancing green innovation among enterprises in heavily polluting industries is more significant in regions with higher public participation and media attention.
This study contributes to the current literature in three significant ways. First, it integrates the theory of environmental legitimacy, thereby enriching the study of the relationship between environmental regulation and green innovation. Specifically, it examines how the establishment of environmental courts influences green technological innovation in heavily polluting industries through the mediating roles of environmental litigation risk and environmental investment. Second, we use a unique data collection method. The study employs a novel data collection approach by manually gathering information on the appointment dates of presidents of environmental courts in various cities from 2006 to 2019. This meticulous effort enables the creation of a more precise policy point-in-time dummy variable, enhancing the accuracy of the policy effects analysis. Third, we employed contextual and dimensional analysis. The paper reveals the differential impacts of environmental courts on green technological innovation across various contexts. It explores these differences across several dimensions, including industry category and external attention, thereby comprehensively understanding how environmental regulation affects firms in different scenarios. These contributions significantly advance our understanding of the mechanisms through which environmental regulation can drive green innovation, particularly in heavily polluting industries. Integrating environmental legitimacy theory, precise policy timing analysis, and contextual differentiation offers new insights into the dynamic interplay between regulatory frameworks and corporate environmental strategies.
The remainder of the paper is organized as follows:
Section 2 presents the research background and hypotheses.
Section 3 details our data sources and empirical strategy.
Section 4 provides benchmark regression results and robustness tests.
Section 5 discusses the impact mechanism and heterogeneity analyses.
Section 6 concludes the paper.
6. Conclusions and Policy Implications
Green technologies play a pivotal role in supporting China’s goals to achieve a carbon peak by 2030 and carbon neutrality by 2060. This study focuses on examining how local environmental justice frameworks influence heavily polluting firms, encouraging them to pursue green R&D initiatives. Specifically, utilizing data from Chinese heavily polluting firms spanning 2006 to 2019, we investigate the impact of environmental courts on green technology innovation. Employing a progressive DID model that leverages the establishment of environmental courts in the Intermediate People’s Court as a quasi-natural experiment, our analysis yields four key findings.
First, environmental courts can significantly boost heavily polluting firms’ green innovation output. This finding is validated by a series of robustness tests such as regressions using a FE Poisson model. Second, environmental courts have primarily contributed to heavily polluting firms’ green transformation by exerting more substantial environmental legitimacy pressure. Environmental courts increase the risk of environmental litigation by heavily polluting firms, compelling increased investment in environmental protection and advancing green technological innovation output. Third, regarding industry categories, environmental courts have a more significant role in promoting green innovation for firms in water pollution-intensive industries. The polluting behavior of firms in water pollution-intensive industries is more likely to produce legally legitimate evidence to execute successful judicial proceedings. Fourth, regarding regional characteristics, the role of environmental courts in promoting green innovation in heavily polluting firms is more significant in regions with higher public participation and media attention.
6.1. Policy Implications
Based on the above findings, we propose the following policy implications: First, policymakers should improve the environmental court system to increase the pressure for environmental legitimacy, guide firms to improve their technological processes, and ensure they actively fulfill their environmental protection obligations. For instance, in cases of environmental pollution, environmental courts should actively explore mechanisms for reviewing firms’ rectification efforts and evaluating the social impact before sentencing. This approach would encourage firms to enhance their technology and motivate the entire industrial chain, both upstream and downstream, to reduce hazardous waste and carbon emissions. Second, the government should broaden judicial channels for addressing environmental pollution, enabling public participation in environmental governance and media monitoring of firms’ polluting behaviors. This strategy is crucial for maximizing the effectiveness of environmental courts. For example, when environmental courts hear typical environmental pollution cases, they can invite the media to report on-site and broadcast the proceedings live on the Internet. This approach can boost public initiative and enthusiasm for participating in environmental resource protection and supervising firms’ pollution behavior.
6.2. Limitations and Future Directions
This study has the following limitations: First, due to data constraints, we can only indirectly measure the pressure on environmental legitimacy faced by firms through litigation risk and environmental investment. Future research should develop a comprehensive indicator framework to measure environmental legitimacy pressure from multiple dimensions directly. Second, the policy implications of establishing environmental tribunals are extensive, and this paper only examines their impact on firms’ green innovation. Future research could explore whether environmental justice affects firm productivity through green technological innovation. Although many studies have investigated the impact of environmental regulation on firms’ total productivity factor, the causal relationship between environmental justice and firms’ total productivity factor still needs to be explored in the literature. Finally, this paper focuses solely on the economic effects of environmental courts in China. The research sample and regional focus limit the generalizability of the findings. Future studies could utilize cross-country data samples for international comparative analyses to better understand the positive impact of environmental justice on firms’ green innovation.