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Can Green Innovation Affect ESG Ratings and Financial Performance? Evidence from Chinese GEM Listed Companies

Author

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  • Jianzhuang Zheng

    (School of Business, Zhejiang University City College, Hangzhou 310015, China)

  • Muhammad Usman Khurram

    (School of Business, Zhejiang University City College, Hangzhou 310015, China
    School of Economics, Zhejiang University, Hangzhou 310058, China)

  • Lifeng Chen

    (School of Business, Zhejiang University City College, Hangzhou 310015, China
    School of Public Affairs, Zhejiang University, Hangzhou 310058, China)

Abstract

Socially and environmentally responsible investing is becoming the benchmark in financial markets. Promoting emerging industries’ environmental performance, social responsibility, and corporate governance (ESG) ratings are increasingly becoming the consensus of multinational green financial institutions, investors, and governments. This study employs 3100 panel data from 2014 to 2019 to conduct empirical research on green innovation, ESG indicators, and the financial performance of China’s Growth Enterprise Market (GEM) listed companies. Based on the “causal steps approach”, we adopt the Sobel–goodman and Bootstrap test to explore the partial mediation effect of ESG indicators. Moreover, when testing the interactive effect of endogeneity, instrumental variables combined with two-stage least squares (2SLS) and a general method of moments (GMM) system are applied in the dynamic panel for robustness. Combing with the approach of ESG factors-integrated and ESG factors-embedded regression models, we find that: (1) Green innovation can significantly improve the ESG scores of GEM listed companies. (2) Both green innovation and ESG performance can improve the financial performances of GEM listed companies, and ESG performance plays an indirect mediating role in the promotion of green innovation on financial performance. (3) Both political connection strength and regional innovation capabilities can negatively moderate the promotion of green innovation on financial performance, and moderating the effect of corporate political connections is more significant than the regional innovation. This study expands the research on the effectiveness of ESG indices and green innovation from the view of micro-GEM companies, providing policy enlightenment for the sustainable development of emerging industries. Our findings provide noteworthy implications for regulators, academicians and practitioners interested in exploring green innovation, ESG rating and financial performance. In addition, providing regulators and the board of directors with insights into the company’s and country’s future growth prospects.

Suggested Citation

  • Jianzhuang Zheng & Muhammad Usman Khurram & Lifeng Chen, 2022. "Can Green Innovation Affect ESG Ratings and Financial Performance? Evidence from Chinese GEM Listed Companies," Sustainability, MDPI, vol. 14(14), pages 1-32, July.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:14:p:8677-:d:863533
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    5. Lifeng Chen & Fuxuan Guo & Lingyan Huang, 2023. "Impact of Foreign Direct Investment on Green Innovation: Evidence from China’s Provincial Panel Data," Sustainability, MDPI, vol. 15(4), pages 1-17, February.
    6. Wu Ning & Ummar Faruk Saeed & Angelina Kissiwaa Twum & Abednego Osei, 2024. "Can ESG disclosures promote firms going concern? Evidence from BRICS countries," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3792-3803, September.
    7. Chen, Lifeng & Khurram, Muhammad Usman & Gao, Yuying & Abedin, Mohammad Zoynul & Lucey, Brian, 2023. "ESG disclosure and technological innovation capabilities of the Chinese listed companies," Research in International Business and Finance, Elsevier, vol. 65(C).
    8. Qingyuan Yang & Shaorong Xu, 2022. "The Relationship between the Political Connections and Green Innovation Development of Chinese Enterprises—Empirical Analysis Based on Panel Data of Chinese A-Share Listed Companies," Sustainability, MDPI, vol. 14(20), pages 1-18, October.
    9. Huaxing Wang & Yanzhao Zeng & Jiali Zhang & Shuhui Yu & Zeyu Wang & Yue Deng, 2025. "Sustainable performance analysis and environmental protection optimization of green entrepreneurship-driven energy enterprises," Palgrave Communications, Palgrave Macmillan, vol. 12(1), pages 1-13, December.
    10. Yang Yang & Jinmian Han, 2023. "Digital transformation, financing constraints, and corporate environmental, social, and governance performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 3189-3202, November.
    11. Inova Fitri Siregar & Tubagus Ismail & Muhammad Taqi & Nurhayati Soleha, 2024. "Influence of ESG on Sustainability Reporting: Mediation Rule of Green Innovation and Investor Sentiment," International Journal of Energy Economics and Policy, Econjournals, vol. 14(1), pages 452-463, January.
    12. Esther Agyeiwaa Owusu & Lulin Zhou & Agyemang Kwasi Sampene & Francis Atta Sarpong & Francisca Arboh, 2024. "Fostering Environmental Performance Via Corporate Social Responsibility and Green Innovation Initiatives: Examining the Moderating Influence of Competitive Advantage," SAGE Open, , vol. 14(2), pages 21582440241, April.
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