Using a difference-in-differences (DID) design, this study investigates the effect of environmental regulation on corporate sustainability. The results show that China's low-carbon city pilot policy has had a positive impact on green innovation. Furthermore, this positive association was especially pronounced for privately owned firms and those in high-pollution industries. Additional analyses showed that the lowcarbon city pilot policy improved both corporate and environmental performance. This paper thus contributes to the literature on environmental regulation and corporate sustainability and has implications of interest to regulators and managers as well as researchers.