PLOS ONE

RESEARCH ARTICLE

Factors affecting the green investment and

assessing sustainable performance of firms in
China
Yufei An1, Ghulam Rasool Madni ID2*

1 School of Economics, Management and Law, Shaanxi University of Technology, Hanzhong, China,
2 Department of Economics, Division of Management and Administrative Science, University of Education,
Lahore, Pakistan

* [email protected]

a1111111111
Abstract
a1111111111 In the process of development, global economies are prioritizing environmental protection
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and firms are also recognizing the importance of minimizing environmental impact during
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a1111111111 production along with maximization of profits through green investments. It is vivid that
green investments are vital for environmental preservation. So this paper contributes to liter-
ature by investigating the role of internal and external factors affecting the decision making
of Chinese firms regarding adoption of green investments and impact of green investments
OPEN ACCESS
on environmental, social, and economic performance of firms. The data is collected from
directors/senior managers of the firms. We received 463 valid responses from listed compa-
Citation: An Y, Madni GR (2023) Factors affecting
the green investment and assessing sustainable nies with Shenzhen, Beijing, and Shanghai Stock Exchange. The “structural equation
performance of firms in China. PLoS ONE 18(12): modeling” with “maximum likelihood estimation” is employed for empirical analysis. The
e0296099. https://doi.org/10.1371/journal. empirical findings reveal that adaptation to climate change and its mitigation is the most
pone.0296099
important driver of green investment. Moreover, green investment positively contributes to
Editor: Normaizatul Akma Saidi, Universiti Malaysia enhancing the social, economic, and environmental performances of Chinese firms. Based
Kelantan, MALAYSIA
on the findings of the study, green investment should be adopted as a corporate strategy by
Received: August 1, 2023 firms for profit maximization, competitive advantage, and improvement in social well-being
Accepted: December 5, 2023 without compromising the environment. Policy makers can promote green investment by
Published: December 21, 2023 offering policy instruments such as tax incentives, guaranteed credits, grants, and investor
education. Training courses may be offered to raise environmental awareness among firms
Copyright: © 2023 An, Madni. This is an open
access article distributed under the terms of the and the general public.
Creative Commons Attribution License, which
permits unrestricted use, distribution, and
reproduction in any medium, provided the original
author and source are credited.

Data Availability Statement: All relevant data are

within the paper and its Supporting Information 1. Introduction
files.
The rapid development of China has resulted in significant costs on the environment. Accord-
Funding: The authors received no specific funding ing to the “environmental performance index report” 2018, China stands at 120th position out
for this work. of 180 countries. Additionally, “more than 70% of large and medium-sized cities of China are
Competing interests: The authors have declared not according to the air quality standards set by WHO” [1]. As a global economic player,
that no competing interests exist. China is now actively addressing environmental issues, including global warming. To this end,

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PLOS ONE Green Investment and Firms

China has begun to align its domestic investment goals with the requirements of the green
economy. Furthermore, China is an active member and supporter of the “Paris Climate
Change Agreement”.
There are numerous factors affecting the global environment while industrial activities are
the main reasons for environmental deterioration. According to Zhang et al. [2], industrial
activities of firms are widely believed to be the main cause of environmental problems. In fact,
the emissions of SO, NO, and smoke from these activities are responsible for 88.15, 67.60, and
83.65 percent of total emission, respectively. Shen et al. [3] support this argument and found
that 80% of environmental pollution is due to operations and production activities of firms in
China. Despite this, Chinese firms have generally failed to invest in green initiatives due to the
negative externalities of pollution [2,4]. Liao et al. [5] warn that prioritizing short-term eco-
nomic growth over environmental concerns can have severe consequences. As public attention
towards environmental issues grows, companies are under increasing pressure [6]. However,
addressing environmental problems is not an overnight task for enterprises, and there are two
main reasons limiting its progress. First, companies have to make additional investments that
could hinder short run profit maximization objectives. Secondly, strong externalities of envi-
ronmental pollution can affect the effectiveness of governance related to the environment if
other enterprises do not participate. To meet environmental governance standards, firms must
adopt sustainable development practices and revise their investment strategies [7].
Environmental degradation often leads to increased government regulations and stricter
environmental standards. Firms may choose to invest in green initiatives to comply with these
regulations and avoid penalties, fines, or legal liabilities. According to surveys, there are multi-
ple factors that impact a firm’s decision to invest in green initiatives. One study by Cortez et al.
[8] found that external determinants like environmental regulations, have an influence on a
company’s green investments and financial performance. Li et al. [9] demonstrated that both
external and internal factors guide companies towards investing in pollution reduction goals.
Yu and Zhang [10] are of the view that external factors can also impact innovation and result
in additional costs on manufacturing. Environmental regulations are the primary concern of
previous literature investigating its role on technological innovation. However, other crucial
factors, including green investments, have not received adequate attention. It has been demon-
strated through empirical evidence from Korean and Chinese firms that financial performance
and competitiveness can be improved through active environmental management [11]. Green
investment is a promising strategy for environmental preservation, promotion of technological
innovations, and effectively fulfilling a firm’s social responsibilities [12]. Green investments
are beneficial for companies in several ways, as pointed out by previous studies. Firstly, they
can serve as a signal of the company’s commitment to fulfilling social responsibilities, which
can enhance corporate valuation [13]. Secondly, Li et al. [9] indicated that firms investing in
green technology can access subsidies by the government, generate higher profits, and pro-
mote green marketing. The government of China is exploring recently how to encourage
green investments among enterprises to support green development. For instance, green
investments have gained popularity in the BRI project and there is remarkable increase in
investment in renewable resources to achieve sustainable goals [14].
Green investment options for Chinese firms can help promote sustainability and environ-
mental responsibility while also potentially expanding their profits. Some promising avenues
include investment in renewable energy like solar and wind power projects to operate the
plants, which not only contribute to reducing the nation’s carbon footprint but also tap into
the growing demand for clean energy sources [15–19]. Additionally, energy efficiency technol-
ogies, green building construction, and sustainable agriculture are other promising sectors for
investment, offering opportunities to reduce resource consumption and greenhouse gas

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PLOS ONE Green Investment and Firms

emissions. Furthermore, firms can produce environmentally friendly and recyclable products
with environmental technology startups to foster sustainable growth [20]. With China’s com-
mitment to ecological stewardship, embracing these green investments not only makes envi-
ronmental sense but can also yield long-term financial benefits.
On the other hand, green investments can have a significant impact on the environmental,
social, and economic performance of firms in various ways. Green investments in renewable
energy and emission reduction projects can directly reduce a firm’s carbon emissions [4]. This
not only contributes to combat climate change but can also lead to operational cost savings
through energy efficiency. Moreover, investment in green technologies and research can lead
to innovations and the development of environmentally friendly products and services [9].
The social impact of green investment occurs in the form of creation of employment opportu-
nities, thus contributing to social development and poverty reduction [11]. Firms involved in
green projects often engage with local communities, addressing their concerns and fostering
positive relationships [13]. Moreover, reducing pollution and improving environmental con-
ditions through green investments can lead to improved public health, reducing healthcare
costs and increasing overall well-being [12]. Firms that embrace green investments can
enhance their reputation and competitiveness, appealing to environmentally conscious con-
sumers and investors. This can lead to increased market share and revenue having a great eco-
nomic impact [14]. Investments in energy efficiency, waste reduction, and sustainable
practices can result in cost savings over the long term, improving a firm’s financial perfor-
mance. Moreover, green-focused companies may have better access to green finance opportu-
nities, such as green bonds or loans with favorable terms, which can support their growth and
development [15–18].
To determine the factors affecting the green investment by Chinese firms has much signifi-
cance in the literature of environmental preservation to save the environment and its implica-
tions for sustainable performance of firms. For a comprehensive understanding of factors
affecting decisions of green investment by firms, more detailed and systematic evidence is nec-
essary. In this study, comprehensive and novel evidence is provided regarding external and
internal factors influencing the decisions of Chinese firms to engage in green investments.
There is hardly any study exploring the factors affecting the decision making of Chinese forms
for green investment and impact of green investment on environmental, social, and economic
performance of Chinese firms. We empirically examined the influential factors of green invest-
ment using data obtained from 463 listed companies in the Beijing, Shanghai, and Shenzhen
Stock Exchanges. The main objectives of the study are to examine the factors affecting the deci-
sion making of Chinese firms regarding green investment and impact of green investment on
environmental, social and economic performance of the firms. This study contributes to the
literature through many ways. Although there is extensive literature on green investment,
there is limited literature examining the factors influencing Chinese firms’ decision-making
for green investment at the micro-level. The firms are major contributors to environmental
degradation so understanding the behavior for green investment is necessary for upgradation
of industry and regional development. Understanding the factors that influence the decision
making of firms for green investment is crucial for formation of effective policies to save the
environment and resource efficiency. However, current evidence on the drivers of green
investments is insufficient. The empirical results of the study depict that external and internal
drivers have a positive and significant role for green investment. Moreover, green investments
enhance the environmental, social and economic performance of the Chinese firms.
After the introduction, section two describes the earlier literature and hypotheses of the
study. Section three explains the materials and methods while section four highlights the

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PLOS ONE Green Investment and Firms

estimated empirical results. Next section five discusses the estimated results and the last section
concludes the paper.

2. Earlier literature and hypothesis

Green investment refers to the utilization of green capital and investment in provisions of
environmentally friendly products, and activities aimed at preventing, mitigating, or compen-
sating for environmental damage, like adopting energy-saving measures or transitioning to
renewable energy sources [21]. There are several ways to define green investment. The OECD,
for example, considers green investment as a broader concept that “is closely related to other
investment approaches such as socially responsible investing (investing in line with social
responsibility), ESG (environmental, social and governance) investing (investing in line with
environmental, social and governance factors), sustainable, long-term investing, or similar
concepts” [22]. Eyraud et al. [23] perceives green investments as “investment necessary to
reduce greenhouse gas and air pollutant emissions, without significantly reducing the produc-
tion and consumption of non-energy goods.” The key components of green investments are
focused on reducing emissions from energy sources, including nuclear power, biofuels, and
renewable energy. Moreover, in OECD [18] green investment report, “green investments refer
to investments that are good for the environment, low carbon emissions and funded projects
primarily in the field of renewable energy or clean tech companies, environmental technology
or markets related to as clean, sustainable, and climate change investments.”
The study [19] tested the expanded model of Theory of Planned Behavior to find the factors
affecting intentions of green investment in the Kingdom of Saudi Arabia. A questionnaire was
sent to 550 graduates of agricultural and food sciences from public universities of the King-
dom. The PLS-SEM results showed strong positive effects of attitudes, knowledge of green
investments, and commitment to green consumption on the intention of potential investors to
make green investments. The findings did support a detrimental impact of subjective norms
on the intention to make green investments. The findings also supported a moderating effect
of religion on the associations between attitude and intention to make green investments.
The study [20] evaluates the current situation of portfolio investment in carbon solution
with a focus on emerging markets (EMs) using a dataset of 37000 mutual funds at global level.
Investment funds related to green investments are primarily focused on the USA while China
is far distant from the largest green fund investment. The allocation of green investments in
EMs is hampered by a number of issues. In order to solve the multiple issues slowing down
green investment in EMs, a comprehensive strategy is required. A greater knowledge is
required about what steers green investment to some nations rather than others, and what
fuels green investment in EMs.
Investments in renewable energy and green financing help to reduce climate change and
accomplish sustainable development objectives. The study [21] used the theory of planned
behavior (TPB) to evaluate the factors that affect households’ intention to invest in green proj-
ects. Through structured questionnaire interviews and random sampling, the primary data
was gathered from Iranian households. It has been found through the use of structural equa-
tion modelling that attitudes, subjective norms, perceived behavioral control, evaluation of the
regulatory framework, perceived risk, and perceived utility of power purchase agreements all
have a significant impact on households’ intentions to invest in green projects. This study
offers empirical results in addition to theoretical ideas that can help policymakers in the pro-
cess of enabling families for green investment.
The primary factors influencing green investment are examined by the study [22]. Green
credit lines, green private lending, and green bonds are the financial products that promote

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PLOS ONE Green Investment and Firms

green investment. In this study, an illustration of giving green credit in exchange for changing
a logistics company’s service delivery technology is provided. The institutional element, such
as legislative and technical requirements for investment, has been discovered in addition to the
financial factors influencing green investments. There is a conflict between the aim to boost
foreign direct investment and technical standards and environmental laws. The term of bud-
getary financing utilization and its usefulness for promoting renewable electricity as a type of
green investment project are defined in the discussion.
Since individual investors dominate the Chinese capital market, analyzing their green
investing practices has both significant practical implications for successfully utilizing the
green finance incentive mechanism as well as a relatively complete theoretical value [23]. The
study first acquires and screens the motivating elements of individual investors’ green invest-
ment behavior based on literature research and a questionnaire survey. The impact of the
herding effect, local preference, environmental awareness, media information, residential
environmental pollution level, policy considerations, company image, and green investment
desire on investment behavior were identified using logistic regression and other methods.
Thirdly, the action courses of the driving elements are tested using a structural equation
model, and six noteworthy influence paths are found among the eight factors.

2.1. Internal drivers and green investment

Internal factors refer to factors that are specific to the investor and have a significant effect on
their decision regarding green investment. For firms, internal drivers play a crucial role in
their green investment decisions due to extensive energy consumption. These drivers include
investing in innovative technologies, adopting environmental management systems, and dis-
playing eco-labels [24]. To achieve sustainability, firms require internal and external efforts in
association with strong coordination among various departments [25]. Financial performance
and economic value are major factors that motivate firms to be environmentally responsible,
such as reducing operational costs, increasing sales volume, and gaining market share [26].
Firms strive to be greener to secure competitive advantages among competitors and to create a
positive image among customers. In Taiwan’s information and electronics industries, compa-
nies that invest more in green products have a great competitive edge [27]. The major internal
drivers considered in this study are reputation of the firm, efficiency gains, financial perfor-
mance, investor’s preferences, and organizational culture.
H1. Internal drivers positively and significantly affect the green investment decisions by
Chinese firms.

2.2. External drivers and green investment

External factors refer to factors that are outside the control of the investor but have a signifi-
cant influence on green investment decisions. External factors play a significant role in driving
green investment decisions. These include increasing customer preference for environmen-
tally responsible products and services, as well as the desire to minimize adverse environmen-
tal impacts [28]. As environmental awareness grows, the demand for green products is on the
rise [29]. Firms are motivated to adopt green initiatives when there is supplier pressure, as sup-
pliers prefer to do business with eco-friendly organizations [30]. Policy makers incentivize
firms to adopt green technology through rewards such as tax breaks and lowered taxes [18].
Additionally, compliance with governmental and environmental regulations is a major factor
that encourages firms to invest in green initiatives [31]. Therefore, external factors have a sig-
nificant impact on green investment, and firms consider these factors when making green
investment decisions [32,33]. The major external factors considered in this study are public

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PLOS ONE Green Investment and Firms

financing, target market, incentives, regulations and legislation, climate change, consumers’
behavior, stakeholders’ behavior.
H2. External drivers positively and significantly affect the green investment decisions by
Chinese firms.

2.3. Environmental performance and green investment

Environmental performance is a firm’s capacity to decrease waste and emissions, hazardous
substances, and environmental incidents [34]. To gain competitive advantages, businesses
across various industries are now implementing strategic environmental performance pro-
grams [29]. Investment in green technologies, green innovations, and renewable energies
improve the environmental performance. The earlier literature determined the relation
between green investment and environmental performance. Chen and Ma [11] conducted an
empirical study on Chinese firms and found that green investment has a positive effect on
improving the environmental performance of a firm. Similarly, for the Indonesian
manufacturing sector, Indriastuti and Chariri [32] found that green investment significantly
enhanced sustainable performance. Ren et al. [33] further suggest that green investment is a
vital driver for China’s sustainable development. They state that green investment negatively
impacts environmental pollution by promoting energy conservation, emissions reduction,
innovative technology development, and industrial infrastructure renovation [34]. Addition-
ally, Asadi et al. [35] observed a positive impact of green investment on environmental perfor-
mance of the Malaysian hotel industry. The hypothesis can be devised on the basis of above
literature:
H3. Green investments by Chinese firms play a significant role to increase their environ-
mental performance.

2.4. Economic performance and green investment

When referring to economic performance, improving the financial capacities due to adoption
of green strategy are considered, which have allowed firms to surpass industry standards [36].
Green investment is considered a crucial factor in economic advancement, as green invest-
ment can positively affect organizational cost. Numerous studies [17,26,30,32] indicated that
green investment significantly impacts economic performance. Asadi et al. [35] showed that
green investment increases economic performance by reducing energy consumption, reducing
waste treatments fees, and lowering penalty for environment related accidents. Additionally,
Yannan et al. [36] are of the view that green investment enhances the sales of the manufactur-
ing industry in China.
H4. Green investments by Chinese firms play a significant role to maximize their economic
performance.

2.5. Social performance and green investment

Organizations often prioritize economic objectives over other aspects, especially in the short
term [36,37]. However, long run sustainability cannot be achieved by focusing solely on eco-
nomic objectives [38]. To achieve sustainability in association with economic benefits, it is
important to establish some criteria that may enhance social and environmental performance
[39]. In addition to increasing employee satisfaction and retention, companies can benefit
from addressing environmental concerns by improving community relations and enhancing
their brand acceptance [7]. Furthermore, fostering social awareness among employees and
attracting and retaining the right talent can yield various benefits [40]. According to Wagner
[41], companies that prioritize social responsibility and accountability can attract top talent,

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PLOS ONE Green Investment and Firms

retain customers, and foster innovations, contributing to social performance of firms. Yang
[42] conducted a study exploring the relation between green investment and social livability in
the Thai tourism industry, and found that green investment significantly improves social liv-
ability by creating employment opportunities for low-income individuals, generating "green"
employment, reducing death rate, and improving social justice.
H5. Green investments by Chinese firms have a significant role in improvement of their
social performance.
The Fig 1 highlights the conceptual framework of the study.

3. Materials and methods

The study used an online questionnaire to gather data which was sent through emails and
social media messengers. The survey questionnaire is placed in appendix. To develop the mea-
surement tools, the researchers conducted a thorough analysis and review of previously pub-
lished studies. The researchers developed six constructs and each of them with specific items.
The sample was selected from companies listed on the Beijing, Shanghai, and Shenzhen Stock
Exchanges. There are seven sections of the questionnaire; the first section is about general
information about the company. The 2nd and 3rd parts examined the company’s internal and
external factors affecting green investment decisions. The 4th part evaluated the extent to
which the companies implemented green investment in their operations. The 5th, 6th, and 7th
parts assessed the companies’ environmental, economic, and social performance, respectively.
A five point Likert scale is used where 1 showing “strongly disagree” and 5 showing “strongly
agree”. The survey questions were completed by executives, managers, or the most senior staff.
The measures regarding green investment were derived from the work of Elzek et al. [43]
and Chen and Ma [11] through six items, with one example being "The firm updates equip-
ment-operating processes to save energy". The values of Cronbach’s α depict high internal
consistency. The study [44] adopted and modified the internal and external factors affecting
green investment. Each scale consisted of five items, with internal drivers including the “com-
pany’s culture towards environmental sustainability, and external drivers such as adaptation

Fig 1. Conceptual framework.

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PLOS ONE Green Investment and Firms

to/mitigation of climate change and ecological degradation”. The values of Cronbach’s α

depict high internal consistency. The studies [45,46] developed the questionnaire items to
measure environmental, economic, and social performance of firms. Examples of evaluating
the influence of green investment on environmental performance include statements such as
"Green investment helps reduce the impact of climate change and ecological degradation." The
economic performance of firms is assessed using the statement "Green investment increases
the company’s sales volume and profit margin". The social performance of firms is evaluated
through the statement "Green investment enhances the quality of life". All values of Cronbach’s
alpha show a high level of internal consistency. Initially, a pilot survey was conducted with 32
participants to assess the clarity, consistency, simplicity, and lack of ambiguity of the question-
naire. Upon receiving the feedback, some statements in the questionnaire were modified.
This research explores the factors affecting Chinese firms’ green investments and examines
the extent to which such investments impact their environmental, economic, and social perfor-
mance. A random sample of listed firms is selected, and an online questionnaire was adminis-
tered to the senior officials of each company. The study’s purpose was clearly communicated,
and participation was voluntary. Of the 650 questionnaires distributed, 463 were considered
for statistical analysis. The time period of data collection was about three months (October-
December 2022). The sample of 463 is sufficient for “structural equation modeling” (SEM)
analysis, as it followed Nunnally’s [46] recommendation that “the sample size should be based
on the number of items to be analyzed, with a case-to-item ratio of 10:1 being acceptable.”
Additionally, 100–150 samples are required for “maximum likelihood estimation” [47,48] and
Boomsma [49] suggests a sample of at least 200 for SEM.
The collected data was analyzed using various statistical measures such as percentages, fre-
quencies, means, and standard deviations. The validity and reliability are evaluated through
“confirmatory factor analysis” (CFA) and “Cronbach’s alpha”. Convergence validity was estab-
lished through the use of “average variance extracted” (AVE) and “composite reliability” (CR),
and discriminant validity was determined using the “Fornell-Larcker criterion”. To determine
“common method variance” (CMV), the “Harman single-factor test” is applied. Lastly, “struc-
tural equation modeling” (SEM) with “maximum likelihood estimation” (MLE) was utilized to
test the hypotheses and establishment of mutual relationship among variables and their
constructs.

4. Results
The demographic characteristics of the participants of the study are given in the following
Table 1.
Table 2 depicts the descriptive statistics and the corresponding items. The participants
reported high levels of commitment to green technology and energy conservation, encourag-
ing eco-labeled goods and services, and upgradation of equipment to save energy, with mean
scores ranging from 3.96 to 4.51. Internal drivers of green investment were rated higher by
participants, with mean scores ranging from 4.21 to 4.92. Financial performance, specifically
returns on green investments, was identified as the highest internal driver motivating manage-
ment to adopt green investment. Participants strongly perceived external factors as significant
predictors of green investments, with average mean scores ranging from 4.01–4.59. “Adapta-
tion to/mitigation of climate change and adapting to continuous market changes” are the high-
est perceived external drivers affecting the decisions regarding green investment. Regarding
the perceived impact of green investment on social, economic and environmental performance
of firms, findings showed that participants believed that green investments reduce GHG

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PLOS ONE Green Investment and Firms

Table 1. Demographic characteristics.

Characteristics No. Percentage
Gender
Male 418 90.3
Female 45 9.7
Age
30 to less than 40 years 177 38.4
40–50 years 245 52.6
More than 50 years 41 9
Education
University Degree 242 52.4
Master’s Degree 150 32.5
Doctoral Degree 70 15.1
Designation
General Manager 322 69.55
Environmental Manager 108 23.33
Other 33 7.12
No. of Years at Current Position
Less than 5 years 61 13.17
5–10 years 251 54.21
11–15 years 102 22.03
More than 15 years 49 10.58

On the basis of 463 valid responses, the study found that 90.3% of the participants were male while only 9.7% were
female. Regarding age distribution, the majority of participants fell into the higher category, with ages ranging from
30 to less than 40 years (38.4%), followed by those between 40 and 50 years old (52.6%). The 9% participants were
older than 50 years. In terms of educational qualifications, 52.4% of participants held a university degree, while 32.5%
have a master degree and 15.1% have doctorate degree.

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emissions (environmental), increase the volume of sales of firms and their profit level (eco-
nomic), and improve quality of life (social).
The validity and reliability of constructs is determined through a CFA using MLE. Firstly,
reliability of constructs was examined using CR and Cronbach’s α. The values of Cronbach’s α
and CR are higher than 0.80 (threshold value), showing good internal reliability [48]. Secondly,
discriminant and convergent validity is determined. For convergent validity, it is required that
factor loadings should be at least 0.50 and coefficients of AVE should be at least 0.50 [50]. The
results indicated that all items had factor loading over 0.50, and the coefficients of AVE
exceeded 0.50, indicating good convergent validity. Various goodness of fit indices are utilized
to determine the model’s fitness. The (x2/df) ratio was below 5, and the RMR score was 0.063,
while the RMSEA score was 0.079, both below the acceptable threshold of 0.08. Additionally,
the GFI, CFI, RFI, NFI, and IFI values were all greater than the recommended values of 0.90
[48,51]. Therefore, according to these indicators, the data fitted the measurement model well.
The criterion used to examine discriminant validity in this study was the Fornell-Larcker
[50] criterion, which states that “a construct is considered to have discriminant validity if its
square root is greater than its correlation with other constructs”. The results of the analysis are
presented in Table 3, where the diagonal numbers show square root of AVE for each construct.
Moreover, all the latent variables have AVE square roots that are higher than their correlation
with other variable, thus indicating a good discriminant validity. To reduce the possibility of
common method variance (CMV) bias due to the use of a web based questionnaire, three

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PLOS ONE Green Investment and Firms

Table 2. Descriptive statistics.

Construct Item Mean SD Factor Loading Cronbach’s α CR AVE
Green Investment 1 4.13 0.88 0.812* 0.924 0.916 0.731
2 4.01 0.84 0.741*
3 4.28 0.90 0.836*
4 4.36 0.83 0.827*
5 3.96 0.87 0.892*
6 4.51 0.92 0.823*
External Drivers 7 4.02 0.93 0.863* 0.892 0.967 0.764
8 4.26 0.82 0.819*
9 4.33 0.15 0.792*
10 4.59 0.82 0.826*
11 4.01 0.63 0.853*
Internal Drivers 12 4.53 0.92 0.916* 0.913 0.893 0.772
13 4.28 0.86 0.829*
14 4.92 0.87 0.873*
15 4.83 0.83 0.814*
16 4.21 0.79 0.846*
Economic Performance 17 4.51 0.88 0.889* 0.881 0.893 0.779
18 4.38 0.82 0.849*
19 4.29 0.83 0.871*
Environmental Performance 20 4.39 0.82 0.923* 0.911 0.952 0.810
21 4.85 0.80 0.917*
22 4.52 0.83 0.893*
Social Performance 23 4.36 0.81 0.856* 0.900 0.823 0.871
24 4.57 0.87 0.861*
25 4.26 0.82 0.937*
RMR = 0.063 RMSEA = 0.079
CFI = 0.933 GFI = 0.917
RFI = 0.951 NFI = 0.902
IFI = 0.935 Normed chi square (x2 / df) = 2.993 p < 0.001

Note: * shows significance at 1%. RMR = Root mean square residual; IFI = Incremental fit index; RMSEA = Root mean square error of Approximation;
CFI = Comparative fit index; GFI = Goodness of fit index; RFI = Relative fit index; NFI = Normed fit index.

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methods are applied: anonymity, confidentiality, and honesty [52]. To further detect any
CMV, a commonly used test “Harman’s single-factor test” is applied and findings show that

Table 3. A Fornell–Larcker method for discriminant validity.

Green Investment External Drivers Internal Drivers Economic Performance Environmental Performance Social Performance
Green Investment 0.885
External Drivers 0.526* 0.847*
Internal Drivers 0.468* 0.453* 0.851*
Economic Performance 0.373* 0.462* 0.516* 0.869*
Environmental 0.285* 0.391* 0.428* 0.587* 0.847*
Performance
Social Performance 0.314* 0.276* 0.362* 0.237* 0.428* 0.843*

Note: * shows significance at 1%.

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PLOS ONE Green Investment and Firms

only 39.8% of variance could be responsible for a single factor, indicating that CMV is not a
significant issue [53].
SEM method is used to investigate the effect of potential variables on green investment and
analyzing influence of green investment on social, economic, and environmental performance
of firms. The findings are presented in Table 4.

5. Discussion
China has experienced substantial environmental degradation in the past thirty years due to its
rapid industrialization and modernization [7]. Despite criticism of its contribution to global
environmental degradation, China is currently promoting the development and utilization of
eco-friendly technologies. This study investigates the key drivers that affect green investments
made by Chinese firms and examines how such investments have their impact on environ-
mental, economic, and social performance. The findings of SEM analysis suggest several sig-
nificant results. Firstly, the results support the first hypothesis, indicating that internal drivers
have a positive and significant impact on green investment. Specifically, financial returns on
green investment, efficiency gains, and a firm’s organizational culture towards environmental
sustainability were found to be significant predictors of green investment implementation.
The earlier literature also found a strong relation between financial returns and green invest-
ment [9,12,54] and suggested that a company’s environmental management sensitivity signifi-
cantly affects environmental sustainability implementation [24]. Additionally, Chitimiea et al.
[45] found that factors such as securing competitive advantages and developing environmental
reputation are predictors of green investment. The green investment decisions of firms are
influenced by a range of internal factors [55]. These internal factors can shape a firm’s strategic
approach to sustainability and environmental responsibility. The organization’s culture and
values play a crucial role [56]. Companies with a strong commitment to sustainability and
environmental responsibility are more likely to prioritize green investments. In addition, the
attitudes and commitment of top management can greatly influence green investment deci-
sions. When leaders are committed to sustainability, it often permeates throughout the organi-
zation [19]. It is also found that firms with strong research and development capabilities may
be more inclined to invest in innovative green technologies and solutions [17]. Companies
aiming to improve operational efficiency may invest in green initiatives to reduce energy con-
sumption, waste, and resource use, which can lead to cost savings [31]. Employee attitudes and

Table 4. Structural parameter estimate.

Hypotheses Standardized Path Coefficient t-values Result
IF ! GI 0.423* 6.583 Yes
EF ! GI 0.396* 7.293 Yes
GI ! EP 0.499* 9.389 Yes
GI ! ECP 0.516* 6.398 Yes
GI ! SP 0.437* 4.887 Yes
x2/df = 2.989* NFI = 0.931
RMSEA = 0.071 CFI = 0.917
RFI = 0.910 GFI = 0.901
IFI = 0.924 RMR = 0.058

Note: * shows significance at 1%. IF = Internal factors; EF = External factors; GI = Green investment;
EP = Environmental Performance; SP = Social performance; ECP = Economic performance
The findings of SEM highlight that all estimated paths are positive and significant, and thus all hypothesis are
supported.

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PLOS ONE Green Investment and Firms

engagement can also affect green investment decisions. A workforce that is environmentally
conscious and supportive of sustainability goals can drive internal initiatives. It’s important to
note that internal factors are interconnected, and their relative importance can vary from one
company to another [12]. It is also found that external factors positively affect green invest-
ment. Therefore, for firms to implement green investment successfully, they should consider
external factors like adapting to/mitigating climate changes, adopting the changing markets,
and meeting the expectations of consumers and stakeholders regarding environmental sus-
tainability. These findings align with previous research that has shown that adapting to climate
change, market changes, meeting environmental expectations, and complying with govern-
ment regulations are significant predictors of green investment implementation
[11,22,44,54,57]. Green investment of firms in China, like those in other countries, are influ-
enced by a variety of external factors like regulatory, economic, social, and technological fac-
tors. Government policies play a significant role in shaping green investment decisions.
Policies that promote environmental protection, sustainability, and renewable energy can
incentivize firms to invest in green projects [21]. For example, subsidies, tax incentives, and
carbon trading schemes can make green investments more financially attractive. Stringent
environmental regulations and standards can require firms to invest in green technologies and
practices to avoid penalties and maintain their operations [18]. Moreover, the cost of green
technologies and practices relative to traditional ones can influence investment decisions. As
green technologies become more cost-effective, firms are more likely to invest in them.
Consumer and market demand for environmentally friendly products and services can
drive firms to invest in green initiatives [17]. Meeting these demands can lead to competitive
advantages and increased market share. Public perception and reputation management are
vital for businesses. Firms may invest in green initiatives to enhance their image and reputa-
tion, especially if they face public pressure to do so [25]. The specific impact of these factors
can vary depending on the industry, company size, and the firm’s strategic goals. However, the
overall trend in China, as in many parts of the world, is toward increased investment in green
and sustainable practices due to growing environmental awareness and regulatory pressures.
It is revealed that green investment improves firms’ environmental performance. Therefore,
investing in green practices and innovative technologies can lead to reduced greenhouse gas
emissions, fewer environmental accidents, mitigation of environmental degradation, and
improved environmental performance. Earlier literature also suggests that green investment is
effective in mobilization of green capital, which can be used to offer environmentally friendly
products, preserve natural biodiversity, and mitigate the adverse effects of climate change and
environmental degradation [55]. Additionally, these findings align with the findings of Chen
and Ma [11] who concluded that green investment promotes environmental performance of
Chinese firms. Further, these findings are also in line with the data obtained from listed com-
panies of China which highlighted that green investments help to boost environmental perfor-
mance of Chinese firms and reduce environmental violation [18]. In the context of Indonesian
firms, the findings of this study are supported by arguing that green investments positively and
significantly have an impact on sustainable performance of firms. Yan et al. [54] collected the
data of 3706 firms of 20 countries covering the time span of 2002–2013 and found a positive
and significant relation between environmental performance and green investment. Therefore,
it can be concluded that green investment enhances the environmental performance of firms.
It is also found that green investment has a positive impact on the economic performance
of firms. Specifically, it contributes to increasing sales volumes, profit margin, and market
share, while also reducing long-term costs such as energy and water consumption. These
results are consistent with previous research such as Chariri et al. [30], highlighting the positive
correlation between financial performance and green investment in Indonesian companies.

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PLOS ONE Green Investment and Firms

Similarly, other studies [11,17,30,32,35] have also highlighted that green investment is a major
factor improving the economic performance of a firm, leading to reduced costs, increased
value of firm, enhanced reputation, and a competitive advantage. The study [32] explained
that “green investment may have an inverted U-shaped impact on economic performance,
indicating a cutoff value beyond which further increases in green investment could negatively
affect financial performance”. This could be due to companies losing focus on other product
quality aspects when investing too much in green activities, which might result in an inability
to offer better products to customers.
Lastly, the study shows a positive relation between green investment and firms’ social per-
formance, suggesting that higher levels of green investment correspond to better social perfor-
mance. These findings align with Abou-Liela’s [55] who found that green investment
improves the quality of social life, like increased public welfare, higher satisfaction, and
enhanced environmental awareness. Yang [42] also found a positive relationship between
green investment on social livability in Thailand, which showed that green investment pro-
motes social livability by creating "green jobs," promoting social justice.

6. Conclusion
One of the prime objectives of this study is to determine the drivers influencing green invest-
ment by Chinese firms and how such investment has an influence on social, economic and
environmental performance of firms. An online questionnaire is used to collect responses
from senior officials of Chinese firms. We received 463 valid responses and data is analyzed
using SEM. The findings indicate that both external and internal drivers significantly influence
green investment, with climate change adaptation as the most prominent driver. Furthermore,
green investment improves the social, economic and environmental performance of firms.
Moreover, green investment is a source to promote sustainable performance.
This study has several theoretical implications derived from the findings of the study.
Firstly, this study is an addition in the literature of green investment by providing a compre-
hensive understanding regarding the role of internal and external drivers influencing green
investments, confirming its role in promoting sustainable performance and supporting the
importance of aligning with stakeholders’ expectations. Although external drivers have higher
impact on green investment as compared with internal drivers but both have positive and sig-
nificant impact. Adaptation to climate change is the most influential factor of green invest-
ment. Secondly, it is found that green investment plays a pivotal role to enhance the
sustainable performance of firms. The derived results revealed that green investment positively
and significantly affects the economic, social and environmental performance of the firms.
Thirdly, the legitimacy theory is also supported by the findings of the study which explains
that public support can be gained through adopting such activities and practices which are
according to expectations of the public and stakeholders [46], including the practices relevant
to green investment. According to legitimacy theory, the findings of the study highlight that
firms may gain their legitimacy from the public through caring about green investments miti-
gating the environmental degradation, greenhouse gas emissions and improving the living
standard of the community. Additionally, it offers practical implications for organizations
seeking legitimacy and public support. Fourth, there is hardly any study that examines the
effect of internal and external factors on green investment in the context of Chinese firms, pro-
viding valuable insights for future research in other specific industrial sectors. Fifth, a theoreti-
cal framework is developed to determine the factors of green investments and its
consequences on firms. The findings of the study are significant revealing the importance of
this study for future research in other sectors.

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PLOS ONE Green Investment and Firms

The study’s results offer several practical implications. Firstly, firms should consider both
internal and external drivers when formulating strategic plans, especially in the context of
environmental preservation, as well as considering the financial returns of green investment.
Secondly, investment in green technology such as renewable energy, and eco-label products
can enhance the social, economic and environmental performance of a firm so their competi-
tive advantage may be sustained. So firms may make investments in green innovations to
enlarge their profits and save the environment. It will enhance the economic, social and envi-
ronmental performance of Chinese firms. Thirdly, green investment can be used as a corporate
strategy for profit maximization while protecting the environment. Fourth, authorities should
play a leading role regarding promotion of green investments through development of policies
having the objective to promote green investment. Policy makers can also promote green
investment by offering policy instruments such as tax incentives, guaranteed credits, grants,
and investor education. Fourthly, awareness about the environment can be raised through
training courses. Fifthly, green investments enhance the quality of life, boost employment
opportunities, and foster a relationship with the community. Sixthly, firms should pay serious
attention to raise the environmental awareness among their employees through training
courses regarding the significance of green investments.
There are also some limitations of this study. The study is conducted on a randomly
selected sample of Chinese firms to determine the factors influencing and outcomes of green
investments, which may limit the generalization of its findings to other countries. Future
research could involve a larger and more diverse sample for more comprehensive insights. The
study treated the effect of internal and external factors on green investment as a uni-dimen-
sional construct comprising five factors. Future research could consider examining the influ-
ence of each driver individually on green investment, as well as exploring additional variables.
Thirdly, the study relied on an online questionnaire completed by the participants based on
their subjective perspectives. To provide a deeper understanding of the phenomenon, mixed-
method approaches involving quantitative and qualitative data collection methods could be
used in future research.

Supporting information
S1 File. https://drive.google.com/file/d/1YtTQmmUwbfnPkOgmh-lany6S3Mi3fAYl/view?
usp=sharing.
(PDF)
S1 Data. https://docs.google.com/spreadsheets/d/12LvgRQ6AnpB-OhMYji76q
5XxWmdIpyf5/edit?usp=drive_link&ouid=104935469773789258540&rtpof=true&sd=true
(XLSX)

Author Contributions
Conceptualization: Ghulam Rasool Madni.
Data curation: Yufei An.
Formal analysis: Ghulam Rasool Madni.
Investigation: Yufei An.
Methodology: Yufei An.
Writing – original draft: Ghulam Rasool Madni.

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PLOS ONE Green Investment and Firms

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