Impact of Environmental, Social, and Governance on Innovation in Chinese Listed Firms

Abstract

As awareness of sustainable development has increased, the corporate advantages of ESG (environmental, social, and governance) have attracted widespread attention from investors, and research has demonstrated that ESG has a sustained impact on long-term business operations. At this new stage of market development, the relationship between ESG rating performance and corporate innovation is worthy of in-depth study. The effect of corporate ESG rating performance on innovation based on stakeholder theory was tested using data from Chinese A-share listed companies from 2009 to 2021. The results show that ESG rating performance can significantly improve corporate innovative output and R&D (research and development) investment. This promotional effect is more significant in large enterprises, state-owned enterprises, and companies in the eastern region of China. ESG rating performance promotes corporate innovation by improving firm financial performance and expanding internationalization. In addition, ESG rating performance not only increases the quantity of innovative output, but also helps to improve the quality of R&D investment. ESG strategy, standardized and mandatory disclosure of information pertaining to ESG, improved quality of information disclosed, and promotion of corporate innovation are all necessary to help enterprises develop in this new era.