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How AI adoption shapes ESG performance in manufacturing: The mediating role of digital transformation

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  • Li, Yuanxin

Abstract

As environmental, social, and governance (ESG) performance is now a central indicator of corporate sustainability and long-run competitiveness, this paper examines whether firms’ adoption of artificial intelligence (AI) improves ESG performance and whether digital transformation (DT) mediates this relationship. Using text-based measures for Chinese A-share listed firms over 2007–2023, we document three findings. First, AI adoption is positively associated with ESG, with markedly stronger effects in manufacturing. Second, instrumental-variables (2SLS) estimates and a range of robustness checks using alternative measures and specifications support the baseline results. Third, DT is a key organisational channel: it partially mediates the AI–ESG relationship in manufacturing and largely accounts for it outside manufacturing, with stronger mediation for environmental and social pillars than for governance. Overall, the evidence suggests that AI delivers more measurable sustainability gains when complemented by DT that embeds AI into auditable operational routines, especially in manufacturing.

Suggested Citation

  • Li, Yuanxin, 2026. "How AI adoption shapes ESG performance in manufacturing: The mediating role of digital transformation," Finance Research Letters, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finlet:v:94:y:2026:i:c:s1544612326002035
    DOI: 10.1016/j.frl.2026.109672
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