As part of an effort to explore and incentivize the development of innovation-driven, green and low-carbon cities, China implemented the innovative city pilot policy (ICPP) in 2008. Using the ICPP as a quasi-natural experiment, we investigate whether and through which channels the ICPP reduces corporate carbon intensity. To do this, we employ a staggered difference-in-differences (DID) econometric method and find that the ICPP indeed mitigates corporate carbon intensity. This relationship is shown to be quite robust using various alternative specifications of the DID analysis. The reduction effect on corporate carbon intensity is more pronounced for private firms, polluting firms, and capital-intensive firms, showing a convergence trend towards technology-intensive and clean firms. We find the ICPP reduces corporate intensity by enhancing corporate innovation and increasing the value-added rate (i.e. corporate upgrading). Based on these novel findings, we draw out policy implications for carbon neutrality, shedding light on pathways for addressing climate change and achieving sustainable development.