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How does low-carbon city pilot policy catalyze companies toward ESG practices? Evidence from China

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  • Wan, Guochao
  • Zhang, Weike
  • Li, Chao

Abstract

The Low-carbon City Pilot Policy (LCPP) represents a pivotal measure for China in advancing its green and low-carbon transition. Previous literature has extensively discussed the impact of LCPP on companies’ micro-behavior, yet its influence on corporate environmental, social, and governance (ESG) practices remains unclear. Drawing on data from Chinese A-share listed companies spanning the period from 2010 to 2020, we investigate the impact of LCPP on ESG practices utilizing a staggered difference-in-differences (DID) method. Our analysis reveals that LCPP significantly contributes to the improvement of corporate ESG practices, especially among companies situated in eastern regions, those with consistent institutional investors, those with large-scale, and those exhibiting superior internal control quality. Moreover, we identify two underlying mechanisms — namely, bolstered corporate dynamic capabilities and heightened analysts' attention — as primary conduits through which LCPP fosters corporate ESG practices. These findings provide decision-making regarding the LCPP and corporate sustainable development.

Suggested Citation

  • Wan, Guochao & Zhang, Weike & Li, Chao, 2024. "How does low-carbon city pilot policy catalyze companies toward ESG practices? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1593-1607.
    • Handle: RePEc:eee:ecanpo:v:81:y:2024:i:c:p:1593-1607
    DOI: 10.1016/j.eap.2024.02.036
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