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Digitalization drives Sustainability: How digital trade enhances corporate ESG performance through innovation, internationalization and transparency

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  • Li, Puying
  • Li, Xinna
  • Wu, Qiang

Abstract

This study examines the relationship between digital trade and corporate environmental, social, and governance (ESG) performance using panel data from Chinese listed firms between 2010 and 2022. Building on resource-based view and stakeholder theory, we develop and test a comprehensive framework that investigates both direct and indirect pathways through which digital trade affects ESG outcomes. Our analysis reveals that digital trade significantly improves overall ESG performance, demonstrating particularly strong effects on environmental and social dimensions. Through mediation analysis, we identify three key transmission mechanisms: technological innovation, internationalization level, and information transparency. Technological innovation emerges as the most powerful mediator, emphasizing how digital capabilities foster sustainable innovations. We address endogeneity concerns through instrumental variables, propensity score matching, and Heckman selection methods, confirming result robustness. Heterogeneity analysis shows that non-state-owned enterprises and mature firms demonstrate stronger capacity to translate digital capabilities into ESG improvements compared to state-owned enterprises and growth-stage firms respectively. This research contributes to the emerging literature connecting digitalization and sustainability by empirically establishing the multi-channel relationship between digital trade and ESG performance in an emerging market context. Our findings provide important implications for policymakers seeking to leverage digital economy development for sustainability objectives and for managers aiming to integrate digital transformation with ESG strategies. The results demonstrate that digital trade serves as a catalyst for corporate sustainability when supported by appropriate institutional frameworks and organizational capabilities.

Suggested Citation

  • Li, Puying & Li, Xinna & Wu, Qiang, 2025. "Digitalization drives Sustainability: How digital trade enhances corporate ESG performance through innovation, internationalization and transparency," International Review of Economics & Finance, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025004113
    DOI: 10.1016/j.iref.2025.104248
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