Does Corporate ESG Performance Enhance Sustained Green Innovation? Empirical Evidence from China

Examining how corporate environmental, social, and governance (ESG) performance impacts the sustainability of green innovation holds significant theoretical and practical value for achieving China’s “dual carbon” goals and advancing corporate sustainability. This study contributes by providing novel empirical insights into the mechanisms and heterogeneous effects of ESG on sustained green innovation, addressing gaps in understanding ESG’s role in emerging markets like China. Using data from Shanghai and Shenzhen A-share listed firms (2009–2023), this study investigates the relationship between corporate ESG performance and sustained green innovation, revealing three key findings. First, corporate ESG performance significantly promotes sustained green innovation – a conclusion robust to rigorous sensitivity tests. Second, mechanism analysis confirms that strong ESG performance elevates innovation capacity by alleviating financing constraints and reducing agency costs, while stricter environmental regulations and higher levels of digital transformation further amplify ESG’s positive impact. Third, heterogeneity tests demonstrate that ESG’s effect is more pronounced in non-state-owned enterprises, non-high-pollution industries, growth-stage firms, and enterprises with higher ESG rating divergence. These insights offer critical theoretical and practical implications for ESG and innovation literature, as well as practical implications for ESG implementation and green policy design in China, guiding firms and policymakers toward more effective sustainability strategies.