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


Green innovation
Investment efficiency
Government-business relationship
Environmental features



Submitted : 2023-07-30
Accepted : 2023-08-14
Published : 2023-08-29


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.


Xie X, Huo J, Zou H, 2019, Green Process Innovation, Green Product Innovation, and Corporate Financial Performance: A Content Analysis Method. Journal of Business Research, 101: 697–706.

Roh T, Lee K, Yang JY, 2021, How do Intellectual Property Rights and Government Support Drive a Firm’s Green Innovation? The Mediating Role of Open Innovation. Journal of Cleaner Production, 317: 128422.

Wang Y, Shen T, Chen Y, et al., 2021, CEO Environmentally Responsible Leadership and Firm Environmental Innovation: A Socio-Psychological Perspective. Journal of Business Research, 126: 327–340.

Hao J, He F, 2022, Corporate Social Responsibility (CSR) Performance and Green Innovation: Evidence from China. Finance Research Letters, 48: 102889.

Lin R-J, Tan K-H, Geng Y, 2013, Market Demand, Green Product Innovation, And Firm Performance: Evidence from Vietnam Motorcycle Industry. Journal of Cleaner Production, 40: 101–107.

Rennings K, 2000, Redefining Innovation — Eco-Innovation Research and the Contribution from Ecological Economics. Ecological Economics, 32(2): 319–332.

Huang Y-C, Chen CT, 2022, Exploring Institutional Pressures, Firm Green Slack, Green Product Innovation and Green New Product Success: Evidence from Taiwan’s High-Tech Industries. Technological Forecasting and Social Change, 174: 121196.

Razzaq A, Wang Y, Chupradit S, et al., 2021, Asymmetric Inter-Linkages Between Green Technology Innovation and Consumption-Based Carbon Emissions in BRICS Countries Using Quantile-On-Quantile Framework. Technology in Society, 66: 101656.

Triguero A, Moreno-Mondéjar L, Davia MA, 2013, Drivers of Different Types of Eco-Innovation in European SMEs. Ecological Economics, 92: 25–33.

Farza K, Ftiti Z, Hlioui Z, et al., 2021, Does it Pay to Go Green? The Environmental Innovation Effect on Corporate Financial Performance. Journal of Environmental Management, 300: 113695.

Cillo V, Petruzzelli AM, Ardito L, et al., 2019, Understanding Sustainable Innovation: A Systematic Literature Review. Corporate Social Responsibility & Environmental Management, 26(5): 1012–1025.

Islam T, Islam R, Pitafi AH, et al., 2021, The Impact of Corporate Social Responsibility on Customer Loyalty: The Mediating Role of Corporate Reputation, Customer Satisfaction, and Trust. Sustainable Production and Consumption, 25: 123–135.

Sha Y, Zhang P, Wang Y, et al., 2022, Capital Market Opening and Green Innovation——Evidence from Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. Energy Economics, 111: 106048.

Ren S, He D, Yan J, et al., 2022, Environmental Labeling Certification and Corporate Environmental Innovation: The Moderating Role of Corporate Ownership and Local Government Intervention. Journal of Business Research, 140: 556–571.

Zhao L, Zhang L, Sun J, et al., 2022, Can Public Participation Constraints Promote Green Technological Innovation of Chinese Enterprises? The Moderating Role of Government Environmental Regulatory Enforcement. Technological Forecasting and Social Change, 174: 121198.

Wu B, Fang H, Jacoby G, et al., 2022, Environmental Regulations and Innovation for Sustainability? Moderating Effect of Political Connections. Emerging Markets Review, 50: 100835.

Yang C-H, Tseng Y-H, Chen C-P, 2012, Environmental Regulations, Induced R&D, and Productivity: Evidence from Taiwan’s Manufacturing Industries. Resource and Energy Economics, 34(4): 514–532.

Zhong Z, Peng B, 2022, Can Environmental Regulation Promote Green Innovation in heavily polluting enterprises? Empirical Evidence from a Quasi-Natural Experiment in China. Sustainable Production and Consumption, 30: 815–828.

Du G, Yu M, Sun C, et al., 2021, Green Innovation Effect of Emission Trading Policy on Pilot Areas and Neighboring Areas: An Analysis Based on the Spatial Econometric Model. Energy Policy, 156: 112431.

Hu G, Wang X, Wang Y, 2021, Can the Green Credit Policy Stimulate Green Innovation in Heavily Polluting Enterprises? Evidence from a Quasi-Natural Experiment in China. Energy Economics, 98: 105134.

Yang S, Wang W, Feng D, et al., 2022, Impact of Pilot Environmental Policy on Urban Eco-Innovation. Journal of Cleaner Production, 341: 130858.

Ren K, Kong Y, Zhang T, et al., 2022, The Impact of the Pollution Permits System on Green Innovation: Evidence from the County-Level Data in China. Journal of Cleaner Production, 344: 130896.

Zhang W, Li G, Guo F, 2022, Does Carbon Emissions Trading Promote Green Technology Innovation in China? Applied Energy, 315: 119012.

Zhou F, Wang X, 2022, The Carbon Emissions Trading Scheme and Green Technology Innovation in China: A New Structural Economics Perspective. Economic Analysis and Policy, 74: 365–381.

Wang H, Qi S, Zhou C, et al., 2022, Green Credit Policy, Government Behavior and Green Innovation Quality of Enterprises. Journal of Cleaner Production, 331: 129834.

Wang Y, Li M, 2022, Credit Policy and Its Heterogeneous Effects on Green Innovations. Journal of Financial Stability, 58: 100961.

Zhang Y, Li X, Xing C, 2022, How does China’s Green Credit Policy Affect the Green Innovation of High Polluting Enterprises? The Perspective of Radical and Incremental Innovations. Journal of Cleaner Production, 336: 130387.

Cui J, Dai J, Wang Z, et al., 2022, Does Environmental Regulation Induce Green Innovation? A Panel Study of Chinese Listed Firms. Technological Forecasting and Social Change, 176: 121492.

Li H, Zhang X, Zhao Y, 2022, ESG and Firm’s Default Risk. Finance Research Letters, 47: 102713.

Luo Y, Xiong G, Mardani A, 2022, Environmental Information Disclosure and Corporate Innovation: The “Inverted U-shaped” Regulating Effect of Media Attention. Journal of Business Research, 146: 453–463.

Wang S, Lin W, Zhang Z, et al., 2022, Does the Environment Information Announcement Promote Green Innovation? A Quasi-Natural Experimental Evidence from the City-Level of China. Ecological Indicators, 136: 108720.

Zhang S, Zhang M, Qiao Y, et al., 2022, Does Improvement of Environmental Information Transparency Boost Firms’ Green Innovation? Evidence from the Air Quality Monitoring and Disclosure Program in China. Journal of Cleaner Production, 357: 131921.

Zhang C, Zhou B, Tian X, 2022, Political Connections and Green Innovation: The Role of a Corporate Entrepreneurship Strategy in State-Owned Enterprises. Journal of Business Research, 146: 375–384.

Liu J, Zhao M, Wang Y, 2020, Impacts of Government Subsidies and Environmental Regulations on Green Process Innovation: A Nonlinear Approach. Technology in Society, 63: 101417.

Xiang X, Liu C, Yang M, 2022, Who is Financing Corporate Green Innovation? International Review of Economics & Finance, 78: 321–337.

Ren S, Sun H, Zhang T, 2021, Do Environmental Subsidies Spur Environmental Innovation? Empirical Evidence from Chinese Listed Firms. Technological Forecasting and Social Change, 173: 121123.

He K, Chen W, Zhang L, 2021, Senior Management’s Academic Experience and Corporate Green Innovation. Technological Forecasting and Social Change, 166: 120664.

Ullah S, Nasim A, 2021, Do Firm-Level Sustainability Targets Drive Environmental Innovation? Insights from BRICS Economies. Journal of Environmental Management, 294: 112754.

Alda M, 2021, The Environmental, Social, and Governance (ESG) Dimension of Firms in which Social Responsible Investment (SRI) and Conventional Pension Funds Invest: The Mainstream SRI and the ESG Inclusion. Journal of Cleaner Production, 298: 126812.

Debbarma J, Choi Y, 2022, A Taxonomy of Green Governance: A Qualitative and Quantitative Analysis Towards Sustainable Development. Sustainable Cities and Society, 79: 103693.

Kraus S, Rehman SU, García FJS, 2020, Corporate Social Responsibility and Environmental Performance: The Mediating Role of Environmental Strategy and Green Innovation. Technological Forecasting and Social Change, 160: 120262.

Khan SAR, Godil DI, Jabbour CJC, et al., 2021, Green Data Analytics, Blockchain Technology for Sustainable Development, and Sustainable Supply Chain Practices: Evidence from Small and Medium Enterprises. Annals of Operations Research.

Tarmuji I, Maelah R, Tarmuji N, et al., 2016, The Impact of Environmental, Social and Governance Practices (ESG) on Economic Performance: Evidence from ESG Score. International Conference on Economics & Finance Research, 37(3): 67–74.

Nekhili M, Boukadhaba A, Nagati H, et al., 2021, ESG Performance and Market Value: The Moderating Role of Employee Board Representation. International Journal of Human Resource Management, 32(14): 3061–3087.

Atan R, Alam MM, Said J, et al., 2018, The Impacts of Environmental, Social, and Governance Factors on Firm Performance. Management of Environmental Quality, 29(2): 182–194.

Wong WC, Batten JA, Ahmad AH, et al., 2021, Does ESG Certification Add Firm Value? Finance Research Letters, 39: 101593.

Patel PC, Pearce JA, Oghazi P, 2021, Not so Myopic: Investors Lowering Short-Term Growth Expectations Under High Industry ESG-Sales-Related Dynamism and Predictability. Journal of Business Research, 128: 551–563.

Alkaraan F, Albitar K, Hussainey K, et al., 2022, Corporate Transformation Toward Industry 4.0 and Financial Performance: The Influence of Environmental, Social, and Governance (ESG). Technological Forecasting and Social Change, 175: 121423.

Becker MG, Martin F, Walter A, 2022, The Power of ESG Transparency: The Effect of the New SFDR Sustainability Labels on Mutual Funds and Individual Investors. Finance Research Letters, 47: 102708.

Luo D, 2022, ESG, Liquidity, and Stock Returns. Journal of International Financial Markets, Institutions and Money, 78: 101526.

Lööf H, Sahamkhadam M, Stephan A, 2022, Is Corporate Social Responsibility Investing a Free Lunch? The Relationship Between ESG, Tail Risk, and Upside Potential of Stocks Before and During the COVID-19 Crisis. Finance Research Letters, 46: 102499.

Giese G, Lee L, Melas D, et al., 2019, Foundations of ESG Investing: How ESG Affects Equity Valuation, Risk, and Performance. Journal of Portfolio Management, 45(5): 69–83.

Broadstock DC, Matousek R, Meyer M, et al., 2020, Does Corporate Social Responsibility Impact Firms’ Innovation Capacity? The Indirect Link Between Environmental & Social Governance Implementation and Innovation Performance. Journal of Business Research, 119: 99–110.

Fatemi A, Glaum M, Kaiser S, 2018, ESG Performance and Firm Value: The Moderating Role of Disclosure. Global Finance Journal, 38: 45–64.

Mbanyele W, Huang H, Li Y, et al., 2022, Corporate Social Responsibility and Green Innovation: Evidence from Mandatory CSR Disclosure Laws. Economics Letters, 212: 110322.

Tan Y, Zhu Z, 2022, The Effect of ESG Rating Events on Corporate Green Innovation in China: The Mediating Role of Financial Constraints and Managers’ Environmental Awareness. Technology in Society, 68: 101906.

Yoon B, Chung Y, 2018, The Effects of Corporate Social Responsibility on Firm Performance: A Stakeholder Approach. Journal of Hospitality and Tourism Management, 37: 89–96.

Albort-Morant G, Leal-Millán A, Cepeda-Carrión G, 2016, The Antecedents of Green Innovation Performance: A Model of Learning and Capabilities. Journal of Business Research, 69(11): 4912–4917.

Shen H, Ma Z, 2014, Local Economic Development Pressure, Firm Environmental Performance and Debt Financing. Journal of Financial Research, 66(2): 153–166.

Yan J, 2021, Corporate Social Responsibility Disclosure and Innovation Performance: An Empirical Study Based on Chinese Listed Firms during “the Post-Mandatory Period”. Science of Science and Management of S.& T., 42(1): 57–75.

Zhu D, Zhou X, 2016, Equity Restriction, Managerial Ownership and Enterprise Innovation Efficiency. Nankai Business Review, 19(3): 136–144.

Ross SA, 1977, The Determination of Financial Structure: The Incentive-Signaling Approach. Bell Journal of Economics, 8(1): 23–40.

Cornell B, 2021, ESG Preferences, Risk and Return. European Financial Management, 27(1): 12–19.

Limkriangkrai M, Koh S, Durand RB, 2017, Environmental, Social, and Governance (ESG) Profiles, Stock Returns, and Financial Policy: Australian Evidence. International Review of Finance, 17(3): 461–471.

Cheng BT, Ioannou I, Serafeim G, 2014, Corporate Social Responsibility and Access to Finance. Strategic Management Journal, 35(1): 1–23.

Gomariz MFC, Ballesta JPS, 2014, Financial Reporting Quality, Debt Maturity and Investment Efficiency. Journal of Banking & Finance, 40: 494–506.

Yuan B, Cao X, 2022, Do Corporate Social Responsibility Practices Contribute to Green Innovation? The Mediating Role of Green Dynamic Capability. Technology in Society, 68: 101868.

Wu D, Zhao Q, Han J, 2020, Corporate Social Responsibility and Technological Innovation: Evidence from China. Nankai Economic Studies, 9(3): 140–160.