The carbon emissions trading scheme (CETS) is an important institutional innovation that internalizes external costs caused by corporate carbon emissions and promotes firms to engage in green development. Based on a 2009–2019 sample of Chinese enterprises of heavily polluting industries listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE), this paper employs the difference‐in‐differences model to examine the effect of CETS on corporate green investment and discuss the moderating effects of external pressure and internal incentive. We find that the implementation of CETS significantly promotes corporate green investment, and this finding still holds after a series of robustness tests such as Propensity Score Matching‐Difference in Differences (PSM‐DID) method and alternative measure of green investment. The heterogeneity analysis indicates that the positive effect of CETS is stronger in large‐scale enterprises, state‐owned firms, and companies located in regions with strict environmental regulation. In addition, less local government intervention and more internal executive compensation incentive significantly enhance the positive impact of CETS on corporate green investment.

Using microdata from listed Chinese firms for 2009-2019, we examined whether and how corporate environmental investments affect supply chain financing. We further investigated the moderating effect of two types of environmental innovation (i.e., voluntary versus compliance environmental innovations). The findings revealed that firms with high levels of environmental investments were more inclined to obtain supply chain financing. This evidence suggests the positive effects of supply chain stakeholders in promoting corporate environmental governance. Moreover, the association could be more or less pronounced for firms with high levels of compliance or voluntary environmental innovation, respectively. Furthermore, channel tests indicated that social responsibility and transaction trust were the primary channels for explaining the above relationships. Finally, the positive relationship between environmental investment and supply chain financing only held for firms located in different cities from the supply chain firms and firms with high social attention. These findings highlight the heterogeneous role of environmental innovation and public governance in alleviating firms' financing constraints.

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