Do ESG Scores in Corporations Improve Green Innovation Empirical Evidence from Listed Chinese Companies

Abstract

The ESG score system is a fundamental component of the green financial system that is essential in promoting corporate environmental progress. In this work, we investigate the micro-environmental impact of ESG scores using panel fixed effects models. We examine the processes underlying the influence of ESG scores on the performance of corporate green innovation, as well as any potential inequalities in this impact under different moderating factors. To conduct our analysis, we use data from Chinese listed A-shares on the Shanghai and Shenzhen stock exchanges from 2010 to 2019. Our study demonstrates a relationship between corporate green innovation and ESG ratings, indicating that higher ESG ratings assist businesses in achieving better green innovation results. This beneficial effect is evident both numerically and qualitatively, and it continues to hold up even after being put through a number of demanding tests. Additionally, we pinpoint two main ways that ESG encourages corporate green innovation: by boosting government-enterprise ties and strengthening corporate investment efficiency. Additionally, we note that while business characteristics aligned with sustainability further enhance the favorable influence of ESG on green innovation performance, characteristics linked to ecologically detrimental activities impede the contribution of ESG to green innovation. Our study adds to the body of knowledge already available on corporate environmental performance and green finance by offering empirical insights that can help enhance corporate environmental development and improve the ESG rating system.