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Can ESG enhance the efficacy of emissions trading systems on enterprise productivity: Evidence from China

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  • Tu, Qiang
  • Wang, Jianing
  • Zuo, Limei
  • Yao, Ye
  • Ji, Qiang

Abstract

The impact of Emissions Trading System (ETS) on firm-level Total Factor Productivity (TFP) is still controversial. With more firms disclosing their Environmental, Social, and Governance (ESG) performance, a key area of interest is understanding the role of ESG disclosures in strengthening the effectiveness of firm-level TFP in the context of ETS. Can ESG disclosures make ETS more effective for firms? And if so, how does this interaction work to improve firm-level TFP? We address these questions by using a difference-in-difference (DID) model. The results show that ESG disclosure enhances the ETS's impact on TFP by 0.155. The combined use of ETS and ESG significantly improves TFP for state-owned and larger firms, particularly in power generation and iron/steel sectors. The underlying influence mechanisms include financing effect, technological innovation effect, and “financing-innovation” chain mediating effect. The study offers insights into designing effective ETS and ESG strategies for government decision-making.

Suggested Citation

  • Tu, Qiang & Wang, Jianing & Zuo, Limei & Yao, Ye & Ji, Qiang, 2025. "Can ESG enhance the efficacy of emissions trading systems on enterprise productivity: Evidence from China," Research in International Business and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925001011
    DOI: 10.1016/j.ribaf.2025.102845
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