As global climate change intensifies, the transition to green and low-carbon development has become a shared objective worldwide. In 2020, China formally proposed the “Dual Carbon” goals—carbon peaking and carbon neutrality—marking a shift from rapid economic growth to high-quality development. In this context, green finance has emerged as a critical tool for driving the green transformation of the economy, receiving significant policy attention. Green finance channels funds toward environmentally friendly industries, promotes efficient resource utilization, and reduces pollution, providing essential financial support for achieving the Dual Carbon targets. The new energy vehicle (NEV) industry, as a key component of the green sector, plays a pivotal role in reducing carbon emissions in transportation. Green finance facilitates technological innovation and market expansion for NEV companies like BYD through low-cost funding, optimized resource allocation, and enhanced risk management. Simultaneously, the Environmental, Social, and Governance (ESG) framework has gained global prominence as a standard for measuring corporate sustainability. ESG performance not only influences a company’s market reputation and financing capabilities but also directly impacts its long-term competitiveness. This study examines how green finance affects BYD’s ESG performance, offering insights for promoting sustainable development in the NEV industry and supporting China’s green transition. We analyze BYD’s green bond issuances, green asset-backed securities (ABS), and their implications for ESG metrics, using tables and formulas to summarize key findings. The results demonstrate that green finance significantly improves environmental governance, social responsibility, and corporate governance structures, contributing to BYD’s overall sustainability.
The relationship between green finance and corporate ESG performance has been explored from various angles in existing research. Studies indicate that environmental performance positively correlates with firm value, particularly in competitive markets, where it enhances corporate worth. For instance, improved environmental metrics can lead to higher market valuations, especially as industries face increasing regulatory pressures. This is expressed in the formula: $$V = \alpha + \beta E + \gamma M + \epsilon$$ where \(V\) represents firm value, \(E\) denotes environmental performance, \(M\) stands for market competition intensity, and \(\epsilon\) is the error term. Empirical analyses show that \(\beta > 0\), suggesting that better environmental performance boosts value. Moreover, green finance has been found to significantly promote technological innovation in energy sectors, with synergistic effects from carbon emission constraints further driving advancements. In terms of social performance, companies can enhance their responsiveness to green finance by increasing consumer sensitivity to corporate social responsibility (CSR) and reducing participation costs. For example, a higher CSR sensitivity coefficient (\(S\)) leads to greater market-driven green finance adoption, as shown in: $$GF = k_1 S – k_2 C$$ where \(GF\) is green finance engagement, \(S\) is CSR sensitivity, \(C\) is cost coefficient, and \(k_1, k_2\) are positive constants. Additionally, regional factors such as stringent environmental enforcement and robust intellectual property protection amplify the positive effects of green finance on innovation, environmental, and social performance, ultimately improving financial outcomes. These findings underscore that when firms integrate ESG principles into strategic planning, they achieve better long-term financial and social results. However, most studies focus on broad industries; this paper narrows the scope to BYD, a leader in the NEV sector, to provide a granular analysis of green finance mechanisms and their direct impact on ESG metrics.
BYD Company Limited, established in 1995, has grown into a global enterprise with over 30 industrial parks worldwide. Its diversified operations span NEVs, traditional vehicles, mobile phone components, rechargeable batteries, photovoltaics, and urban rail transit. Committed to sustainability, BYD aims to create a comprehensive zero-emission new energy solution chain, from energy generation and storage to application, balancing environmental and economic benefits. A key aspect of BYD’s strategy involves the development and promotion of BYD EV and BYD car models, which are central to reducing carbon emissions in transportation. The company’s focus on innovation in BYD EV technology has positioned it as a market leader, driving the adoption of electric vehicles globally. To support these initiatives, BYD has actively leveraged green finance instruments, such as green bonds and ABS, to secure funding for research, development, and production. These efforts align with the Dual Carbon goals, enabling BYD to enhance its ESG performance while expanding its market presence. The integration of green finance into BYD’s operations demonstrates how financial tools can catalyze sustainable practices in the automotive industry, particularly for BYD car lines that prioritize energy efficiency and emission reduction.
BYD’s engagement with green finance began with the issuance of green bonds, approved by the National Development and Reform Commission in November 2018. The first tranche, “18 BYD Green Bond 01,” was issued on December 21, 2018, with a total value of CNY 10 billion, a coupon rate of 4.98%, and a 5-year term, including adjustment and repurchase options at the end of the third year. This was followed by “19 BYD Green Bond 02” on June 11, 2019, with the same amount but a lower coupon rate of 4.86%. Both bonds received AAA credit ratings from China Chengxin International, and third-party verification by PwC ensured that the funds were allocated to projects compliant with the Green Bond Support Project Directory, primarily focused on NEV component R&D and industrialization. For instance, “18 BYD Green Bond 01” directed CNY 7.2 billion to power battery pack production lines and CNY 2.8 billion to motor controller R&D, while “19 BYD Green Bond 02” supported IGBT chip development and e-drive system upgrades. The use of these funds has led to tangible outcomes, such as increased production capacity for battery systems, reduced unit product energy consumption, and extended driving range for certain BYD EV models due to silicon carbide e-drive innovations. Over their lifecycle, these projects are projected to reduce CO2 emissions by 420,000 tons, equivalent to reforesting 2,300 hectares. BYD’s proactive management, including interest rate adjustments in 2021, optimized debt structure and investor confidence, showcasing a successful “green bond + technology upgrade” model for high-end manufacturing.
| Bond Name | 18 BYD Green Bond 01 | 19 BYD Green Bond 02 |
|---|---|---|
| Prospectus Disclosure Date | December 11, 2018 | June 3, 2019 |
| Issue Date | December 19, 2018 | June 12, 2019 |
| Total Amount | CNY 10 billion | CNY 10 billion |
| Coupon Rate | 4.98% | 4.86% |
| Term | 5 years | 5 years |
| Issue Price | CNY 100 | CNY 100 |
| Credit Rating | AAA | AAA |
| Project Name | Planned Fund Usage (CNY billion) | Percentage of Total |
|---|---|---|
| Qinghai BYD Lithium Iron Phosphate Project | 2.5 | 25% |
| Shanwei BYD Lithium-ion Battery Electrode Expansion | 0.8 | 8% |
| Wuhan BYD NEV Bus Components Manufacturing | 1.7 | 17% |
| Working Capital Supplement | 5 | 50% |
| Project Name | Planned Fund Usage (CNY billion) | Percentage of Total |
|---|---|---|
| Baotou BYD Power Battery Production | 0.7 | 7% |
| Taiyuan BYD Power Battery Assembly | 1.5 | 15% |
| Xi’an BYD Power Battery Production | 2.8 | 28% |
| Working Capital Supplement | 5 | 50% |
In addition to green bonds, BYD has utilized green asset-backed securities (ABS) to bolster its NEV initiatives. Since 2018, BYD has issued 16 ABS products totaling over CNY 69 billion, with green ABS accounting for CNY 46.5 billion. Notably, in 2021, BYD Auto Finance Company launched its first green auto loan ABS, “Shengshi Rongdi 2021-2 Green ABS,” followed by four similar issuances in 2022. These instruments provide substantial funding for BYD EV sales and related infrastructure, such as charging stations, accelerating the adoption of NEVs and contributing to节能减排 (energy saving and emission reduction). By focusing on BYD car financing, green ABS enhances market liquidity and supports the company’s sustainability goals, demonstrating how financial innovation can drive environmental benefits in the automotive sector.
The impact of green finance on BYD’s ESG performance is evident in its Wind ESG ratings and scores from 2018 to 2024. As shown in the table below, BYD maintained an AA rating from 2018 to 2021, reflecting strong overall ESG performance, though it shifted to A in subsequent years with some fluctuations in scores. The environmental score, for instance, rose significantly from 5.88 in 2018 to 8.01 in 2021, indicating improved environmental governance due to green finance investments. Similarly, social and governance scores showed variability but generally remained at respectable levels, underscoring the multifaceted benefits of green financial instruments. To quantify this relationship, we can model the change in ESG score (\(\Delta ESG\)) as a function of green finance inflow (\(GF\)): $$\Delta ESG = \beta_0 + \beta_1 GF + \beta_2 X + \mu$$ where \(GF\) represents the amount of green bonds or ABS, \(X\) denotes control variables like R&D expenditure, and \(\mu\) is the error term. Empirical data suggest that \(\beta_1 > 0\), confirming that green finance positively influences ESG metrics. This analysis highlights how targeted financial mechanisms drive sustainability in BYD’s operations, particularly for BYD EV and BYD car projects that align with low-carbon objectives.
| Year | Wind ESG Rating | Wind ESG Score | Management Practice Score | Controversy Score | Environmental Score | Social Score | Governance Score |
|---|---|---|---|---|---|---|---|
| 2018 | AA | 8.78 | 5.78 | 3.00 | 5.88 | 9.40 | 8.21 |
| 2019 | AA | 8.29 | 5.48 | 2.81 | 5.07 | 9.35 | 7.55 |
| 2020 | AA | 8.36 | 5.63 | 2.73 | 4.89 | 9.07 | 8.54 |
| 2021 | AA | 8.40 | 5.62 | 2.78 | 8.01 | 8.33 | 7.69 |
| 2022 | A | 7.91 | 5.20 | 2.71 | 7.54 | 6.97 | 7.91 |
| 2023 | A | 8.22 | 5.27 | 2.95 | 6.94 | 7.26 | 8.15 |
| 2024 | AA | 7.83 | 5.13 | 2.70 | 6.82 | 7.52 | 7.39 |
Green finance has profoundly influenced BYD’s environmental performance. The surge in environmental scores, particularly in 2021, correlates with investments from green bonds and ABS into BYD EV technologies. For example, funds allocated to battery pack production and motor controller R&D have enhanced energy efficiency and reduced emissions across BYD car models. In 2024 alone, BYD implemented over 410 energy-saving projects, cutting CO2 emissions by 210,000 tons. This can be expressed using the formula for emission reduction: $$E_{red} = \sum_{i=1}^{n} (E_{base} – E_{new}) \cdot A_i$$ where \(E_{red}\) is total emission reduction, \(E_{base}\) and \(E_{new}\) are baseline and new emission levels per unit, and \(A_i\) is the activity scale for project \(i\). The green ABS, such as the “Shengshi Rongdi” series, provided capital for expanding BYD EV sales, directly contributing to lower carbon footprints. Moreover, green bond proceeds supported advanced battery recycling technologies, improving resource utilization and minimizing waste. These initiatives demonstrate how green finance drives environmental stewardship, making BYD car products more sustainable and aligning with global climate goals.
In terms of social responsibility, green finance has enabled BYD to enhance its social performance through job creation and community engagement. The social score, though fluctuating, improved from 6.97 in 2022 to 7.52 in 2024, reflecting increased investments in human capital and infrastructure. Green ABS and bonds facilitated the scaling of BYD EV production, generating employment in R&D, manufacturing, and sales. For instance, the expansion of BYD car assembly plants created thousands of jobs, while investments in charging infrastructure improved public access to green transportation. The social impact can be modeled as: $$S_{impact} = \lambda J + \delta I$$ where \(S_{impact}\) is social performance, \(J\) represents jobs created, and \(I\) denotes infrastructure development, with \(\lambda\) and \(\delta\) as positive coefficients. BYD’s participation in public welfare projects, such as promoting NEV adoption in underserved areas, further bolstered its CSR profile. By leveraging green finance, BYD has not only advanced its business but also fulfilled social obligations, fostering inclusive growth and environmental awareness.
Corporate governance has also benefited from green finance, as seen in the stable governance scores ranging from 7.39 to 8.54 between 2018 and 2024. The issuance of green bonds and ABS necessitated stringent disclosure and compliance, prompting BYD to strengthen its governance frameworks. In 2024, BYD elevated ESG to a strategic level, establishing dedicated committees and appointing a Chief Sustainability Officer, with ESG metrics integrated into executive compensation. This alignment can be described by the governance improvement function: $$G_{imp} = \theta D + \phi R$$ where \(G_{imp}\) is governance improvement, \(D\) is disclosure quality, and \(R\) is risk management efficiency, with \(\theta\) and \(\phi\) as parameters. Enhanced transparency and internal controls, driven by green finance requirements, have boosted investor confidence and operational efficiency. For example, the proactive management of green bonds, including rate adjustments, demonstrated robust governance practices. This focus on governance ensures that green funds are utilized effectively, supporting BYD’s long-term sustainability and reinforcing the positive cycle between green finance and ESG performance.
In conclusion, green finance has significantly positively impacted BYD’s ESG performance under the Dual Carbon goals. Through green bonds and ABS, BYD has enhanced its environmental metrics by reducing emissions and advancing BYD EV technologies, improved social responsibility via job creation and infrastructure, and strengthened governance through better transparency and management. The analysis, supported by tables and formulas, confirms that green finance serves as a catalyst for sustainable development in the NEV industry. For BYD and similar companies, we recommend deepening green technology R&D—particularly in battery and smart systems for BYD car lines—to maintain competitiveness and access to green funding. Enhancing social responsibility in supply chains and employee welfare will further align with ESG expectations. Additionally, refining governance structures will ensure efficient use of green finance, fostering trust and long-term growth. Policymakers should continue to support green financial instruments to accelerate the green transition. Overall, this study underscores the synergistic relationship between green finance and ESG, offering a model for other enterprises in the sector. By prioritizing sustainability, companies can not only achieve regulatory compliance but also drive innovation and value creation in the era of low-carbon development.