<p>Amidst escalating concerns over climate change and worsening air pollution, green finance has garnered considerable interest from academics and policymakers. In contrast to previous green finance policies that relied on a single financial instrument, Chinese government implemented the Green Financial Reform and Innovation Pilot Zones (GFRIPZ) policy in 2017, a new diversified green finance policy. Our paper examines whether green finance from GFRIPZ policy affects firm cash holdings, known as the firm “lifeblood”. The findings document that the firms located in cities implementing GFRIPZ policy hold fewer cash holdings than other firms do after policy year. Specifically, green finance reduces firm cash holdings by 8.54% of the sample mean. Additionally, this effect is attributed to relaxation of credit constraints, or enhancement of sustainable transformation, and this effect would be enhanced by a high informal credit market, high internal governance, high operational stability. Overall, this paper reveals the firm cash holding effects of a new diversified green finance policy from developing countries, which provides empirical evidence for sustainable development.</p>