The influence of green credit policy on green innovation and transformation and upgradation as a function of corporate diversification: The case of Kazakhstan

Berikhanovna, Chemirbayeva Mergul; Bauirzhanovna, Bekmukhametova Assemgul; Kudaibergenovna, Niyetalina Gaukhar; Gulbagda, Bodaukhan; Serikovna, Yerkulova Gulmira Article The influence of green credit policy on green innovation and transformation and upgradation as a function of corporate diversification: The case of Kazakhstan Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Berikhanovna, Chemirbayeva Mergul; Bauirzhanovna, Bekmukhametova Assemgul; Kudaibergenovna, Niyetalina Gaukhar; Gulbagda, Bodaukhan; Serikovna, Yerkulova Gulmira (2023) : The influence of green credit policy on green innovation and transformation and upgradation as a function of corporate diversification: The case of Kazakhstan, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 11, Iss. 8, pp. 1-18, https://doi.org/10.3390/economies11080210 This Version is available at: https://hdl.handle.net/10419/328835 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Citation: Berikhanovna, Chemirbayeva Mergul, Bekmukhametova Assemgul Bauirzhanovna, Niyetalina Gaukhar Kudaibergenovna, Bodaukhan Gulbagda, and Yerkulova Gulmira Serikovna. 2023. The Influence of Green Credit Policy on Green Innovation and Transformation and Upgradation as a Function of Corporate Diversification: The Case of Kazakhstan. Economies 11: 210. https://doi.org/10.3390/ economies11080210 Academic Editor: Luigi Aldieri Received: 21 June 2023 Revised: 28 July 2023 Accepted: 4 August 2023 Published: 11 August 2023 Copyright: © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). economies Article The Influence of Green Credit Policy on Green Innovation and Transformation and Upgradation as a Function of Corporate Diversification: The Case of Kazakhstan Chemirbayeva Mergul Berikhanovna 1,*, Bekmukhametova Assemgul Bauirzhanovna 2, Niyetalina Gaukhar Kudaibergenovna 3, Bodaukhan Gulbagda 4and Yerkulova Gulmira Serikovna 4 1 Higher School of Economics and Business, Al-Farabi Kazakh National University, Almaty 050040, Kazakhstan 2International Relations Faculty, Al-Farabi Kazakh National University, Almaty 050040, Kazakhstan; [email protected] 3Economic Faculty, Turan University, Almaty 050013, Kazakhstan 4Faculty of Business and Law, Yessenov University, Aktau 130000, Kazakhstan; [email protected] (Y.G.S.) *Correspondence: mer[email protected] Abstract: This study investigates the heterogeneous effects of the green credit policy (GCP) on firms’ green innovation and transformation and upgradation. Using a comprehensive dataset of companies operating in the green sector, we employ panel regression models to examine the interaction between the policy and firm characteristics among SMEs in Kazakhstan. The results reveal significant heterogeneity in the effects of the policy across different scales of enterprises. In terms of green innovation, the policy has a positive and significant impact on large enterprises, while its effects are not significant for smalland medium-sized enterprises. Similarly, for transformation/upgradation, the policy demonstrates a positive effect on large enterprises but lacks significance for smaller firms. These findings suggest that larger enterprises may have a greater capacity and more resources to capitalize on the policy incentives and implement greener practices effectively. Additionally, the study identifies technological capability as a mediating factor and regulatory environment as a moderating factor influencing the relationship between the policy and green outcomes. The theoretical implications highlight the importance of considering firm characteristics and contextual factors in understanding the heterogeneous effects of environmental policies. From a practical standpoint, policymakers should tailor policy interventions to account for the varying needs and capacities of different scales of enterprises. Moreover, fostering technological capability and improving the regulatory environment can enhance the effectiveness of green policies. Keywords: green credit policy; heterogeneous effects; green innovation; transformation and upgradation; technological capability 1. Introduction In recent years, there has been increasing global recognition of the urgent need to address environmental challenges and transition toward a more sustainable future (Shammi et al. 2022). The detrimental impacts of climate change, the depletion of natural resources, and pollution have sparked a collective realization that immediate action is necessary to protect the planet for future generations (Faroque and South 2022). Governments, businesses, and financial institutions are actively seeking ways to promote environmentally friendly practices and investments that can mitigate these challenges (Desalegn and Tangl 2022). One prominent approach that has gained significant traction is the implementation of GCP (Ma et al. 2023). These policies, also known as sustainable finance initiatives, aim to provide financial incentives and support for initiatives that contribute to sustainability. By aligning financial systems with environmental objectives, green credit policy (GCP) has the Economies 2023,11, 210. https://doi.org/10.3390/economies11080210 https://www.mdpi.com/journal/economies Economies 2023,11, 210 2 of 18 potential to drive substantial change across sectors and foster a transition to a low-carbon and resource-efficient economy (Chai et al. 2022). GCP plays a crucial role in encouraging companies to adopt greener practices, invest in green technologies, and engage in sustainable development (Li and Chen 2022). These policies can take various forms, such as offering preferential loan terms, reduced interest rates, or access to additional capital for projects that meet specific sustainability criteria. By providing financial incentives, GCP motivates businesses to integrate sustainability into their core strategies, operations, and supply chains (Zheng et al. 2022). One key aspect of GCP is its ability to mobilize capital toward green investments. Financial institutions, including banks, asset managers, and venture capitalists, increasingly incorporate environmental, social, and governance (ESG) factors into their decision-making processes. Through GCP, these institutions can direct their lending and investment portfolios towards environmentally friendly projects, such as renewable energy, energy efficiency, sustainable agriculture, and clean transportation (Wang et al. 2022). This helps address environmental challenges and opens up new avenues for economic growth and job creation in the emerging green sectors. The existing literature on the influence of GCP has primarily focused on the impact of promoting green innovation within companies (Tian et al. 2022;Zheng et al. 2022). However, there is a notable gap in understanding how these policies interact with corporate diversification strategies, particularly in the context of emerging economies. Corporate diversification refers to expanding companies into multiple industries or sectors, and it has been recognized as a crucial driver of economic growth and competitiveness (Wang 2023). Likewise, there is a limited understanding of how the policy’s effects vary across firms and their characteristics. More specifically, research is scant on the heterogeneous effects of the GCP on small and medium enterprises’ green innovation and transformation and upgradation (Li and Chen 2022). Therefore, exploring the relationship of GCP with green innovation and transformation and upgradation as a function of corporate diversification is essential to study. It can comprehensively facilitate an understanding of the mechanisms through which these policies can catalyze sustainable development within diversified companies operating in emerging economies (Su et al. 2023). This understanding can inform the design and implementation of more targeted and tailored GCP, ultimately enhancing its effectiveness in promoting sustainable practices and facilitating the transition towards a low-carbon and resource-efficient economy (Zhang et al. 2022). Additionally, the GCP indirectly influences green innovation and transformation by promoting the adoption of cleaner technologies and sustainable practices. Financial incentives provided by the policy encourage firms to undertake green projects, such as renewable energy installations, energy-efficient infrastructure, and waste management systems (Chai et al. 2022). These investments contribute to environmental sustainability and enhance firms’ technological capabilities by providing them with practical experience and knowledge in implementing green technologies (Chen et al. 2022). Hence, enhancing technological capability is one key pathway through which the GCP influences green innovation and transformation. Technological capability refers to an organization’s ability to develop, adopt, and effectively utilize environmentally friendly technologies (Chin et al. 2022). Researchers have found that the availability of green credit encourages firms to invest in research and development activities, fostering the acquisition and development of innovative technologies that support sustainable practices (Fan et al. 2023). At the same time, this study extends previous findings and projects the mediatory role of technological capability. Simultaneously, the current study is unique in presenting that the impact of the GCP on green innovation and transformation is contingent on the regulatory environment within which firms operate. The regulatory framework plays a moderating role by shaping the incentives and disincentives firms face in pursuing sustainable practices. A supportive regulatory environment, characterized by clear and stringent environmental regulations, reinforces the positive effects of the GCP (Li et al. 2023). Besides, this study is grounded in Economies 2023,11, 210 3 of 18 the resource-based view (RBV) theory, which suggests the significance of firms’ capabilities and resources in deriving performance (Xu et al. 2022). In the context of this study, the GCP is regarded as an external and technological capability as an internal resource that firms can utilize to enhance their green innovation and transformation and upgradation efforts. By accessing green credit, companies can obtain financial resources that enable them to invest in environmentally friendly technologies, processes, and practices. Hence, based on the research gap and integration of RBV theory, the objectives of this study are as follows: 1. To examine the direct influence of GCP on green innovation, transformation and upgradation, and technological capability within companies operating in emerging economies. This includes investigating how these policies incentivize companies to adopt environmentally friendly practices, invest in green technologies, and engage in sustainable development; 2. To explore the heterogeneous effects of GCP on small and medium enterprises (SMEs) in terms of their green innovation and transformation/upgradation. This objective aims to shed light on how the impact of GCP may vary depending on the characteristics of SMEs, such as their size, sector, and level of diversification; 3. To assess the mediating role of technological capability in the relationship of GCP with green innovation and transformation and upgradation. This objective seeks to understand how the availability of financial incentives provided by GCP enhances firms’ technological capabilities, thereby facilitating their adoption and utilization of environmentally friendly technologies; 4. To investigate the moderating role of the regulatory environment in the relationship of GCP with green innovation and transformation and upgradation. This objective aims to understand how the regulatory framework within which firms operate influences the effectiveness of GCP in promoting sustainable practices. By addressing these objectives, this study aims to contribute to a comprehensive understanding of the mechanisms through which GCP can catalyze sustainable development within diversified companies in emerging economies. Moreover, the rest of the study includes a theory and literature review section followed by a methods section. Section 4 presents the study’s analysis and results, followed by a discussion and conclusion based on the findings and their suggested implications. 2. Theory and Literature Review 2.1. Resource-Based View (RBV) Theory Under the RBV framework, the theory suggests that firms with diverse business activities and capabilities are better positioned to leverage green credit effectively (Patnaik et al. 2022). Corporate diversification allows companies to access different markets, technologies, and resources, which can enhance their ability to adopt and implement green practices (Hsu 2023). Diversified firms may have the advantage of transferring knowledge, skills, and experiences from one business unit to another, thereby facilitating the integration of sustainable practices throughout their operations (Su et al. 2023). Furthermore, the RBV theory signifies the firm’s resources and capabilities to attain a competitive edge (Khanra et al. 2022). In the context of this study, diversified firms may possess unique resources, such as managerial expertise, technological capabilities, and network relationships, which can be leveraged to successfully implement green innovation, transformation, and upgradation initiatives (Kruesi and Bazelmans 2023). These resources and access to green credit can enable firms to develop and deploy environmentally friendly technologies, improve operational efficiency, and adapt to changing market demands. Applying the RBV theory to the study allows researchers to analyze how the availability of green credit interacts with a firm’s diversification strategy and internal resources to drive green innovation, transformation, and upgradation. Furthermore, the theory emphasizes the importance of resource heterogeneity and immobility, as resources that are unique to a firm and are difficult to replicate by competitors can lead to sustained competitive advantage (Van Schoubroeck et al. 2023). Hence, the theory provides a framework to examine how firms can achieve a Economies 2023,11, 210 4 of 18 competitive advantage by effectively utilizing green credit and leveraging their diversified operations. 2.2. Green Credit Policy The GCP is a financial instrument designed to encourage and support environmentally sustainable projects and initiatives. It is a policy framework that governments or financial institutions implement to channel credit and financial resources toward activities that promote ecological preservation, resource conservation, and the transition to a low-carbon economy (Tian et al. 2022). The policy aims to address pressing environmental challenges. The core objective of the GCP is to align financial flows with sustainable development goals by redirecting capital toward environmentally beneficial projects (Wang et al. 2022). It recognizes that traditional financial systems often overlook the environmental impact of investments and lending practices. The policy seeks to rectify this by incorporating environmental criteria into credit evaluation and lending decisions (Su et al. 2023). Hence, by integrating environmental considerations into financial decision-making, the GCP aims to incentivize and accelerate the adoption of sustainable practices across various sectors of the economy. Moreover, financial institutions under the GCP offer preferential terms, such as lower interest rates, longer repayment periods, or reduced collateral requirements, to borrowers engaged in green projects or activities. These projects can include renewable energy installations, energy-efficient buildings, sustainable agriculture, waste management systems, clean transportation, and eco-friendly manufacturing processes (Yin et al. 2022). The policy aims to overcome the initial barriers and costs associated with adopting green technologies and practices by providing financial incentives. Additionally, GCP also promotes transparency and accountability in financing activities (Kamran and Zhao 2016;Xue et al. 2022). It encourages financial institutions to disclose information on their green lending portfolio and environmental impact, enabling stakeholders to assess the effectiveness and sustainability of their lending practices. This transparency helps build trust and confidence among investors, consumers, and the general public, fostering a more sustainable financial system. Furthermore, the GCP can have broader economic and social benefits. It stimulates the development of green industries, creating new job opportunities and contributing to economic growth (A. Xu et al. 2023). By channeling funds towards sustainable projects, the policy encourages innovation and technological advancements, supporting the development and diffusion of clean technologies and solutions. 2.3. Green Credit Policy and Its Outcomes in Kazakhstan The influence of GCP on green innovation, transformation, and upgradation as it relates to corporate diversification in an emerging economy like Kazakhstan represents a significant contextual gap in the existing research landscape. As a rapidly developing nation, Kazakhstan faces a unique set of environmental challenges and opportunities that necessitate a closer examination of the effects of GCP on sustainable development (Ain and Waheed 2021;Popkova and Sergi 2023). For instance, Kazakhstan has experienced remarkable economic growth in recent years, largely driven by its rich natural resources, particularly in the oil and gas sectors. However, this rapid growth has also resulted in environmental degradation, including high levels of greenhouse gas emissions, water pollution, and land degradation (Zhang et al. 2023). According to the World Bank, Kazakhstan emitted 286 million metric tons of CO2 in 2018, making it one of the top greenhouse gas emitters in the region (Raihan et al. 2023). In response to these environmental challenges, Kazakhstan has taken steps toward promoting sustainability and green practices. For instance, the country has ratified the Paris Agreement, signaling its commitment to reducing greenhouse gas emissions (Nurgaliyeva et al. 2022). Additionally, Kazakhstan launched the Green Economy Transition concept, which aims to diversify the economy, reduce environmental risks, and foster green innovation and technologies. These initiatives highlight the government’s recognition of the importance of transitioning towards a more sustainable and low-carbon economy. However, there is a Economies 2023,11, 210 5 of 18 lack of empirical research specifically examining the influence of GCP on green innovation, transformation, and upgradation within diversified companies operating in Kazakhstan. This contextual gap is particularly relevant given Kazakhstan’s economic diversification efforts, including agriculture, renewable energy, and transportation. Moreover, conducting this study in Kazakhstan would provide valuable insights into the challenges and opportunities an emerging economy faces in implementing GCP. It would shed light on the barriers and facilitators that companies encounter in integrating sustainability practices while pursuing diversification strategies. 2.4. Hypotheses Development 2.4.1. Green Credit Policy and Green Innovation By providing financial incentives and support to businesses and organizations engaged in green activities, the GCP encourages adopting and developing environmentally friendly technologies, practices, and products (Gao et al. 2022). Research shows that the policy encourages financial institutions to offer favorable loan terms, reduced interest rates, and other financial incentives to businesses involved in green innovation (Anam 2023;Chai et al. 2022). This support helps companies invest in research and development, product design, and the implementation of sustainable technologies, which has accelerated the pace of green innovation. The GCP also facilitates the diffusion of green technologies by supporting their market adoption (Feng et al. 2023;Jam et al. 2018). With financial support and incentives available, businesses have been motivated to adopt sustainable practices and technologies. This has led to the widespread implementation of green solutions across industries, accelerating the transition toward a more sustainable economy (Maghnaoui 2021;Luo et al. 2022). This further reflects that GCP has had a transformative effect on green innovation. Moreover, based on the theoretical foundation, we expect that the implementation of the GCP will incentivize firms to engage in green innovation activities. Additionally, given the differences in resources, capabilities, and institutional contexts, we anticipate that the impact of the GCP on green innovation will vary across different firm sizes. Larger enterprises typically have more financial resources, research and development capacities, and access to external knowledge networks, making them better equipped to effectively leverage policy incentives. Therefore, we hypothesize the following: H1. The GCP has a positive effect on green innovation. This effect is heterogeneous across firm sizes, with a stronger effect for larger enterprises compared to smallerand medium-sized enterprises. 2.4.2. Green Credit Policy and Transformation and Upgradation The GCP incentivizes the upgrade and modernization of infrastructure to align with green and sustainable standards. Financial institutions provide loans and credit facilities to support building renovation, installing energy-efficient systems, the development of sustainable transportation networks, and the improvement of waste management and recycling facilities (Bertoldi et al. 2021;Maryam and Ahamad 2021). It further facilitates the transformation of outdated and inefficient infrastructure into more environmentally friendly and resource-efficient structures. Simultaneously, the GCP has encouraged businesses to invest in and adopt clean technologies as part of their transformation efforts (Sun et al. 2022). Additionally, research reveals that the GCP has spurred the transformation and upgrading of supply chains toward sustainability (Ayuningrat and Hadiwidjojo 2016;Lai et al. 2023). Financial institutions offer support to companies for implementing sustainable sourcing practices, promoting eco-friendly packaging, and reducing the carbon footprint of transportation and logistics operations (Du et al. 2021). This has led to the integration of green principles throughout the supply chain, encouraging suppliers and partners to adopt sustainable practices and contribute to overall sustainability goals (Li and Chen 2022). Hence, we expect that implementing the GCP will positively influence transformation and upgradation in firms’ operations and processes. As with green innovation, we anticipate Economies 2023,11, 210 6 of 18 that the effect of the GCP on transformation and upgradation will vary across different firm sizes. Thus, it is postulated that H2. The GCP has a positive effect on transformation and upgrading. This effect is heterogeneous across firm sizes, with a stronger effect for larger enterprises compared to smallerand medium-sized enterprises. 2.4.3. Green Credit Policy, Technological Capability, and Green Innovation Technological capability refers to a firm’s ability to develop, acquire, and apply technology in the pursuit of innovation and improved performance (Peerally et al. 2022). The GCP encourages enterprises to focus on enhancing their employees’ knowledge and skills in green technologies and practices (Ngah et al. 2022). In order to qualify for green credit, businesses often need to demonstrate their ability to effectively utilize and maintain green technologies. As a result, training programs, workshops, and knowledge-sharing platforms have been established to build capacity and expertise in environmentally friendly technologies (Bustinza et al. 2019;McCracken et al. 2019). This focus on skill development has elevated the technological capability of individuals and organizations, enabling them to innovate and implement green solutions effectively. In the context of green innovation and transformation and upgradation, firms with strong technological capabilities are better positioned to develop and implement environmentally friendly practices, technologies, and processes. Building upon the RBV theory, the technological capabilities further facilitate the firms in driving the adoption and success of green innovation and transformation/upgradation. Hence, the following hypotheses are posited. H3. The GCP has a positive effect on SMEs’ technological capabilities. H4. Technological capability positively influences the adoption of (a) green innovation and (b) transformation/upgradation. 2.4.4. Technological Capability as a Mediator Technological capability, a firm’s capacity to develop and apply technology, is crucial in driving innovation outcomes. Studies indicate that the policy’s focus on promoting environmentally friendly practices and encouraging the adoption of green technologies has resulted in tangible impacts on developing and improving technological capabilities (Smania et al. 2022). Researchers have observed that the availability of green credit facilitates increased investments in research and development (R&D) initiatives, particularly in areas related to renewable energy, waste management, sustainable agriculture, and clean manufacturing (Taghizadeh-Hesary and Yoshino 2020). These investments have played a crucial role in acquiring and creating advanced technological knowledge and expertise. Additionally, enterprises with strong technological capabilities possess the knowledge, expertise, and resources to develop and implement environmentally friendly solutions (A. Xu et al. 2023). Through their technological capabilities, businesses can integrate green technologies, optimize processes, and improve resource efficiency, thereby fostering green innovation (Yuen et al. 2021). Technological capability bridges the potential of technological advancement and the actual implementation of green innovation. It enables enterprises to leverage their technological prowess to adopt sustainable practices, create innovative green products and services, and address environmental challenges (Qalati et al. 2022). Additionally, by harnessing their technological capabilities, businesses can embark on digital transformation journeys, adopt sustainable practices, and enhance operational efficiency (Shen et al. 2022). Technological capability acts as an enabler of transformation by providing the tools, knowledge, and resources necessary to upgrade and modernize business operations (Wibowo 2022). Through technological capability, enterprises can navigate the complexities of digital disruption, transform their business models, and adapt to changing market dynamics. Additionally, technological capability enables businesses Economies 2023,11, 210 7 of 18 to embrace sustainable practices, optimize resource utilization, and drive operational excellence, which are fundamental aspects of transformation and upgradation. Hence, the policy’s support for technology adoption and development can enhance firms’ technological capabilities, enabling them to implement transformative changes and upgrade their systems effectively. Thus, it is postulated that H5. Technological capability mediates the relationship of the GCP with (a) green innovation and (b) transformation and upgradation. 2.4.5. Regulatory Environment as a Moderator Governments also play a pivotal role in facilitating the implementation of GCP. They can introduce regulatory frameworks and incentives that encourage financial institutions to embrace sustainable finance practices (Hong et al. 2021). For example, governments can establish green bonds or green loan programs, where the proceeds are dedicated to funding projects with environmental benefits (Mansoor et al. 2022). By doing so, governments create a favorable environment for businesses and financial institutions to prioritize sustainability in their decision-making processes. Furthermore, GCP can potentially drive innovation and technological advancements (Li and Chen 2022;Ma et al. 2023;Tian et al. 2022). As companies seek to meet the sustainability criteria required to access green credit, they are incentivized to invest in the research and development of new technologies and practices that are environmentally friendly. This can lead to discovering innovative solutions and developing clean technologies that address environmental challenges and present significant economic opportunities. Besides, the regulatory environment, encompassing the formal and informal rules, regulations, and institutional frameworks governing environmental practices, can shape firms’ responses to the GCP (Biclar 2022;Borsatto and Bazani 2021). We anticipate that a more favorable regulatory environment, characterized by stringent environmental standards and clear guidelines, will strengthen the positive impact of the GCP on green innovation. Likewise, the regulatory environment’s influence is also expected to moderate the relationship between the GCP and transformation and upgradation. A supportive regulatory framework, characterized by clear guidelines and incentives for environmental improvements, can reinforce the effectiveness of the policy in driving transformation and upgradation efforts (Peng et al. 2021). Hence, it is postulated that H6. The effect of the GCP on (a) green innovation and (b) transformation and upgradation is moderated by the regulatory environment. 3. Research Methodology 3.1. Data Sources and Models In this study, we adopted a quasi-natural experiment design by collecting data from multiple sources relevant to SMEs in Kazakhstan. Financial and other relevant data specific to SMEs were obtained from the Agency of the Republic of Kazakhstan for Statistics, Kazakhstan Stock Exchange (KASE), and Small Business Development Centres relevant to SMEs in Kazakhstan. The sample period for data collection spanned from 2010 to 2020. The primary sample for analysis consisted of SMEs in Kazakhstan meeting the criteria of being registered as SMEs according to the guidelines provided by the Ministry of National Economy (MNE) of the Republic of Kazakhstan. Additionally, the sample was further refined to include only the SMEs from the manufacturing, services, and technology industries out of 1.3 million registered SMEs in the country as of 2020 (as per MNE). These SMEs contribute significantly to the economy, providing employment opportunities and driving economic growth in various sectors (Malik and Jasi´nska-Biliczak 2018). After applying these criteria, a final sample dataset was obtained, comprising 500 SMEs in the treatment group and 650 SMEs in the control group. The continuous variables were winsorized at the 0.5 and 99.5 percentiles to mitigate the influence of extreme outliers. The study employed a difference-in-differences (DIDs) model to examine the impact of GCP on Economies 2023,11, 210 8 of 18 the diversification strategies of SMEs. The proposed model of the study is represented as follows: Green Innovation = β0 + β1 * GCP + β2 * Technological Capability + β3 * (GCP * Technological Capability) + β4 * Regulatory Environment + β5 * Control Variables + ε(1) Transformation and Upgradation = β0 + β1 * GCP + β2 * Technological Capability + β3 * (GCP * Technological Capability) + β4 * Regulatory Environment + β5 * Control Variables + ε(2) The coefficient β 1 represents the direct effect of the GCP on green innovation. A positive and statistically significant β 1 indicates that the implementation of GCP positively impacts the promotion of green innovation among SMEs in Kazakhstan. The coefficient β 2 represents the direct effect of technological capability on green innovation. A positive and statistically significant β 2 suggests that higher technological capability enhances the level of green innovation. The coefficient β 3 represents the interaction effect of GCP and technological capability on green innovation. A positive and statistically significant β 3 indicates that the combined effect of GCP and technological capability is greater than the sum of their individual effects on green innovation. The coefficient β 4 represents the moderating role of the regulatory environment. A positive and statistically significant β 4 suggests that a supportive regulatory environment strengthens the relationship between GCP, technological capability, and green innovation. The coefficient β 5 represents the control variables and their influence on the dependent variables. These control variables include factors such as firm size, innovation investment (Int), operating cash flow (Cfo), and asset-to-liability ratio (Lev) to account for potential confounding factors that might influence the outcomes of interest. 3.2. Conceptualization of Study Variables Table 1presents the conceptualizations of the study constructs. Table 1. Conceptualization of study variables. Variables Conceptualization Green Innovation The degree to which firms engage in innovative green practices Transformation and Upgradation The extent to which firms undergo transformational changes and upgrade their processes and technologies for sustainability Green Credit Policy A policy that incentivizes and supports green initiatives Technological Capability The firm’s capability to develop and adopt green technologies Regulatory Environment The regulatory framework and environment for green initiatives Control Variables Firm Size The size of the firm in terms of employees and revenue Innovation Investment The level of investment in research and development for innovation Operating Cash Flow The amount of cash generated from daily operations Asset-to-Liability Ratio The ratio of a firm’s total assets to its total liabilities 4. Analysis and Results 4.1. Descriptive Statistics The descriptive statistics in Table 2provide an overview of the variables included in the analysis. Economies 2023,11, 210 15 of 18 regions with distinct socio-economic and institutional settings. Future studies could examine the effects of other environmental policies and consider a broader range of countries or regions to enhance the generalizability of the findings and capture the heterogeneity across different policy contexts. Additionally, to gain a more comprehensive understanding of the long-term effects of the GCP, future research could extend the analysis over a more extended time period. This would allow for the assessment of the sustainability and durability of the observed effects and provide insights into the dynamics and trajectory of green practices within firms. Finally, in the article, we have not conducted in-depth comparative analyses to check the significance of green credit policy for green transformation in the case of Kazakh companies, for instance, as was the case for China. Hence, it is recommended that future researchers conduct a detailed comparative analysis to determine the significance of specific assumptions established for Kazakhstan’s green credit policy to achieve more sustainable economic development. Author Contributions: Conceptualization, C.M.B. and N.G.K.; methodology, B.A.B.; software, N.G.K.; validation, B.A.B. and B.G.; formal analysis, N.G.K. and Y.G.S.; investigation, B.A.B.; resources, B.G.; data curation, C.M.B.; writing—original draft preparation, C.M.B.; writing—review and editing, B.G.; visualization, Y.G.S.; supervision, C.M.B.; project administration, Y.G.S.; All authors have read and agreed to the published version of the manuscript. Funding: This research received no external funding. Informed Consent Statement: Not applicable. Data Availability Statement: No data is available. Conflicts of Interest: The authors declare no conflict of interest. References Ain, NoorUl, and Mehwish Waheed. 2021. 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