Can industry competition stimulate enterprises ESG performance?

The environmental, social, and governance (ESG) framework integrates economic development with sustainability, addressing critical issues such as climate change. Implementing ESG practices contributes to achieving the Sustainable Development Goals and advancing carbon neutrality. This article explores the determinants of firms' ESG scores from an industry-level perspective, in contrast to previous studies that emphasized firm-specific or macroeconomic policies. Specifically, it investigates the effect of industry rivalry on ESG scores for the period 2011 to 2023, revisiting the concept of escape competition. The findings indicate that intensified industry competition can significantly improve corporate ESG performance, consistent with the escape competition theory. These improvements are driven by mechanisms related to productivity, governance, and talent aggregation. Additionally, factors such as firms' ownership structure, industry type, operational efficiency, and the number of enterprises within an industry generate varying effects on ESG outcomes. State-owned enterprises, particularly those in pollution-intensive sectors, often face more severe financial constraints and contend with a higher number of intra-industry competitors. As a result, they may be more compelled to adopt ESG practices to maintain market share and gain competitive advantages. This study also offers policy recommendations to help governments promote and strengthen ESG adoption.