In contrast to prior studies that focus on the product or technological dimension of environmental innovation, this study broadens the scope of environmental innovation to the business model innovation of servitization. It investigates the exogenous shock of environmental policy on the servitization of manufacturing firms in the specific context of aspirant markets such as China. By employing the difference-in-differences (DID) method, this study finds that manufacturing firms in regulated sectors are more likely to develop services than those in non-regulated sectors. However, manufacturing firms prefer to develop basic rather than advanced services. Additionally, resource slack positively moderates the effects of environmental regulations on servitization. This study provides policy and managerial implications concerning environmental regulations on manufacturing firms’ adoption of service-related environmental innovations.