<p>To promote sustainable urban development, governments worldwide have introduced Green Building Certification (GBC), with China leading the way, yet its corporate consequences remain underexplored. This paper examines how GBC relates to corporate green innovation and financial distress risk. Employing a differences-in-differences design and a sample of Chinese listed firms, we find that GBC is associated with significant increases in both green innovation and financial distress risk. The results survive a battery of robustness checks while accounting for firms’ real estate holdings, indicating that our baseline results do not appear to operate through the collateral mechanism. The association is stronger for firms receiving substantial government environmental subsidies, over-investing in green projects, and led by politically promoted executives, but is weaker for firms with strong CSR performance, suggesting political distortions as the underlying mechanism. Our findings reveal a tension in real estate markets: the very forces that make GBC effective in stimulating green innovation are also associated with a hidden threat, heightened financial distress.</p>