Leveling Up Your Green Mojo: The Benefits of Beneficent Investment

We study corporate investment responses to environmental regulations using a manually collected dataset on project investments and categorizing projects by their societal benefits. We show that firms in cities targeted by heightened regulations increase environmental investments, particularly in projects with larger societal value. The response is stronger for long-term projects, firms in non-green sectors, and non-state-owned enterprises. Media attention, politician career concerns, and financial motivations facilitate private capital’s engagement in green initiatives. Firms undertaking larger environmental investments experience higher green revenue growth, more green patenting, and better financial performance. These benefits are supported by government fiscal efforts, including subsidies and tax concessions. Importantly, the societal gains of these investments outweigh their fiscal costs, indicating a multiplier effect of public green capital. Our findings highlight the role of regulation in aligning firm value with broader social welfare objectives.