Transitioning to a low-carbon economy requires mobilizing private capital not only for green firms, but also for high-emission firms with demonstrated prospect of decarbonization. This paper posits that green revenue—the proportion of revenue from environmentally beneficial activities – serves as a credible signal of a firm’s capacity for low-carbon transition. Utilizing a global panel of 13,168 firms from 2014 to 2024, we present evidence that green revenue significantly eases financial constraints, measured via investment–cash flow sensitivity. The effects are strongest for high-emission firms, indicating that capital markets especially rely on credible signals of transition capacity for the firms most exposed to transition risks. Our findings hold when considering alternative financial constraint metrics and various robustness tests, suggesting a virtuous cycle: green revenue relaxes financial frictions, which in turn enables further decarbonization investment and counters the “brown penalty.” Overall, our findings indicate that demonstrating transition capacity—particularly in high-emission sectors—can effectively help firms to mobilize private capital for the climate transition.
