- Fangjun Wang: School of Business, Ningbo University, Ningbo, China.
- Xinmiao Zhou: School of Business, Ningbo University, Ningbo, China.
- Tian Gan: School of Business, East China University of Science and Technology, Shanghai, China. ORCID
Green funds play pivotal roles in driving corporate sustainable development. Utilizing data from Chinese publicly listed companies from 2010 to 2021, we examine the impact of green funds on corporate environmental, social, and governance (ESG) performance and the underlying mechanisms. The research findings claim that green funds positively affect corporate ESG performance. Mechanism analysis systematically demonstrates that green funds contribute to elevated corporate ESG performance by alleviating financial constraints, enhancing managerial efficiency, and fostering green innovation. Heterogeneity analysis further underscores that the effect of green funds is particularly potent in companies with high external attention. Furthermore, green funds also play significant roles in production capabilities and economic value. This research enriches the micro-level evidence on the development of green funds and furnishes substantial implications for sustainable development.