Greening the Gavel: How environmental courts reshape corporate ESG performance in China?

Environmental justice plays a central role in modern environmental governance, yet little causal evidence shows whether judicial reforms can induce firms to proactively improve ESG performance. This paper exploits the staggered establishment of environmental courts in China as a quasi-natural experiment and uses firm-level data from 2008 to 2023. Staggered difference-in-differences estimates show that environmental courts significantly improve corporate ESG performance. Judicial reform raises the expected cost of environmental violations and strengthens public scrutiny, which together enhance enforcement credibility and accountability. Consistent with regulatory substitution, the effects are stronger where command-and-control regulation and market-based environmental policies operate less effectively. Firms respond more strongly in larger and non-heavily polluting firms, in more competitive industries, and in regions with stronger legal institutions. We find no evidence of productivity losses and document spillover effects along supply chains and within industries. These findings highlight judicial enforcement as a complementary institutional tool that shapes firm behavior and amplifies the impact of environmental regulation.