This study examines the relationship between corporate environmental performance (CEP) and corporate financial performance (CFP) in the context of evolving national environmental policies in China. Using a panel dataset of 1,312 Chinese A-share listed firms from 2010 to 2023, we find a negative association between CEP and CFP, prompting additional analysis of how this relationship evolves across four major environmental policies. Results reveal that the CEP¬¬–CFP relationship is significantly impacted by Chinese regulatory context. While stronger mandates intensify the negative link, transitional policies tend to weaken it. These findings indicate that sustainability outcomes are context-dependent, with policy and institutional design playing a critical role in shaping environmental trade-offs. The study draws on stakeholder and institutional theory, the cost–benefit perspective and resource-based view to explain firm-level responses, and suggests practical implications for managers and policymakers, as well as broader relevance to other emerging economies undergoing institutional environmental reforms.