Responsible International Investment: ESG and OFDI in China

In response to the growing trend of sustainable development in various countries, the specific advantages driving outward foreign direct investment (OFDI) by multinational corporations have undergone significant changes. The emphasis on environmental, social, and governance (ESG) factors and the ESG advantages they create may become a new competitive edge for OFDI. This paper explores the impact and mechanisms of ESG advantages on Chinese enterprises’ OFDI, using data from A-share listed companies between 2009 and 2019. The study finds that ESG advantages can significantly and steadily enhance the likelihood and scale of listed companies’ overseas investments. The investment promotion effect of ESG is mainly evident in greenfield investments and is slightly more pronounced in non-state-owned enterprises. Mechanism analysis shows that ESG advantages can reduce the capital costs (mainly debt costs) of cross-border investments internally, easing financing constraints. Moreover, when confronted with host countries with different ESG levels, multinational corporations with ESG advantages can flexibly leverage social and governance advantages and overcome the disadvantages caused by environmental factors, thereby enhancing corporate OFDI activities. This paper may be the first to confirm the positive impact of corporate ESG advantages on OFDI, revealing the growing importance of responsible enterprises in building a higher-level open economy system at the micro level. It also provides important insights for promoting the image of responsible enterprises and great power globally and realizing the concept of a community with a shared future of humanity.