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The Impact of Environmental Protection Tax on Green Innovation of Heavily Polluting Enterprises in China: A Mediating Role Based on ESG Performance

Author

Listed:
  • Yihui Duan

    (School of Engineering, University of Manchester, Manchester M13 9PL, UK)

  • Amir Rahbarimanesh

    (School of Engineering, University of Manchester, Manchester M13 9PL, UK)

Abstract

This article selects 2992 Chinese heavily polluting listed companies on the Shanghai and Shenzhen stock markets from 2014 to 2022 as research samples and conducts a natural experiment based on the implementation of the Environmental Protection Tax Law in 2018. The empirical study investigates the impact of the implementation of the Environmental Protection Tax Law on green innovation in heavily polluting enterprises using the difference-in-differences method. The research finds that the levy of environmental protection tax is beneficial for improving the level of corporate ESG performance, thereby enhancing the green innovation capability of heavily polluting enterprises. At the same time, the promotion of green innovation levels in heavily polluting enterprises by the Environmental Protection Tax Law mainly depends on strategic green innovation rather than substantive green innovation. Moreover, the impact of environmental protection tax on enterprises of different natures and scales varies significantly. Environmental protection taxes have notably enhanced green innovation levels more in state-owned enterprises than their non-state-owned counterparts. Similarly, large-scale enterprises have seen a more substantial increase in green innovation due to environmental protection taxes than smaller enterprises. In addition, corporate ESG performance plays a mediating role in the impact of environmental protection taxes on green innovation in heavily polluting enterprises. From the dual perspectives of environmental protection taxes and corporate ESG performance, this paper proposes ideas for the improvement of green innovation levels in heavily polluting enterprises. At the same time, it provides empirical evidence for the economic consequences of environmental protection taxes and corporate ESG performance and suggests that enterprises improve their green innovation system and enhance the quality of ESG information disclosure. The government is improving the system of environmental taxation and ESG information disclosure, enhancing public awareness of environmental protection, and exercising supervision over energy supply.

Suggested Citation

  • Yihui Duan & Amir Rahbarimanesh, 2024. "The Impact of Environmental Protection Tax on Green Innovation of Heavily Polluting Enterprises in China: A Mediating Role Based on ESG Performance," Sustainability, MDPI, vol. 16(17), pages 1-20, August.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:17:p:7509-:d:1467453
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    References listed on IDEAS

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    Cited by:

    1. Mo Zhou & Kaihua Bao & Xiliang Hu & Chen Gao & Ya Wen & Ting Zhang, 2025. "Climate-Resilient City Construction and Firms’ ESG Performance: Mechanism Analysis and Empirical Tests," Sustainability, MDPI, vol. 17(14), pages 1-22, July.
    2. Wuxin Zhang & Haiying Pan, 2024. "Pursuing Cleaner Skies: A Study on the Impact of China’s Environmental Protection Tax Law on Haze Pollution," Sustainability, MDPI, vol. 16(24), pages 1-23, December.
    3. Zhang Zelin & Mui Yee Cheok & Zhang Zelin, 2025. "Mapping the Nexus between Green Taxation and Technological Innovation in Enterprises: A Bibliometric Analysis," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(5), pages 6541-6574, May.
    4. Xuejia Zheng & Lei Zhuang, 2025. "The Impact of Environmental Protection Tax on Green Behaviors and ESG Performance of Industrial Enterprises," Sustainability, MDPI, vol. 17(19), pages 1-18, September.

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