<p>Green finance is pivotal in advancing societal efforts to mitigate carbon emissions. This study examines the influence of green mutual fund investments on corporate green innovation among Chinese firms. Utilizing an extensive dataset of green patents and mutual fund portfolios, we show that firms backed by green mutual funds exhibit significantly higher levels of green innovation. This relationship is particularly pronounced in non–state-owned firms, firms with robust governance conditions, and those operating within sound institutional environments. Additionally, the positive impact is amplified when green funds are highly reputable, actively engage with portfolio firms, and are managed by women. The results are robust across various econometric models and validated by employing China’s Clean Air Action as a quasi-experiment. Overall, our findings challenge the greenwashing critique by providing empirical evidence that green investors genuinely foster environmental innovation rather than merely projecting a green image.</p>