Green finance serves as a crucial engine for promoting green and low-carbon transition, yet little research has focused on its implications for income distribution. This paper centers on the income distribution effects of green finance policies, specifically examining the pathways and underlying mechanisms through which it affects the labor income share of firms. By constructing a modified CES production function, we elucidate the theoretical logic linking green finance to firms’ labor income share. Employing the implementation of the Green Credit Guidelines as a quasi-natural experiment, we conduct causal identification using data from A-share listed companies. The findings reveal that after the implementation of the Guidelines, the labor income share of constrained, heavily polluting firms declined. This effect operates through three channels: the conventional capital suppression effect, the skill structure restructuring effect, and the skill premium adjustment effect. The negative impact is more pronounced among firms located in resource-based cities, but weaker in firms with higher elasticity of substitution and greater reliance on external finance. Further analysis reveals that the Guidelines have no significant impact on the labor income share of green enterprises, while their impact on heavily polluting enterprises is concentrated on medium-wage enterprises, and the within-firm pay gap significantly narrows. Moreover, measures such as improving innovation revenue distribution mechanisms, optimizing green skill training, and strengthening policy coordination can mitigate the decline in the labor income share. This study provides novel evidence on the multidimensional socioeconomic consequences of green finance and offers insights for achieving a more inclusive green transition.