AI vs. ESG? Uncovering a Bidirectional Struggle in China’s Sustainable Finance

As global discourse increasingly centers on environmental, social, and governance considerations, ESG investment has become a major trend in financial markets. Artificial intelligence (AI), through its rapid evolution, has exerted a transformative influence that continues to reshape the fundamental structures of this domain. This study investigates the dynamic relationship between AI and ESG investment indices in China, aiming to reveal the bidirectional causal linkages and time-dependent interactions between these two critical areas. In methods, we used four different parameter stability tests to indicate that the Granger causality test based on the full-sample VAR model may produce biased results. Therefore, we employed a bootstrap rolling-window subsample Granger causality test using data from January 2013 to September 2024 in China. The results reveal a significant dynamic relationship between ESG investment and AI. In key findings, we find that AI exerts a negative impact on ESG investment. AI development attracts substantial capital inflows that favor technological advancement and commercialization over long-term ESG investments. Meanwhile, ESG investment shows both positive and negative effects on AI. The positive effect indicates that ESG investment promotes AI research and applications emphasizing energy efficiency, data privacy, and fairness, thereby supporting the sustainable development of AI technologies. However, driven by short-term economic returns, strict ESG standards and compliance requirements may, in the short term, constrain the development of certain energy-intensive or emerging AI technologies. In economic and political implications, our study provides policymakers with scientific evidence to improve the ESG investment environment and to design balanced policies that support both AI development and sustainable investment practices. It underscores the necessity of promoting coordinated development between AI and ESG investment to achieve global sustainability goals and recommends measures to align short-term economic interests with long-term ESG objectives. This study is expected to serve as a scientific basis for ESG goal-setting and contribute to the realization of China’s dual-carbon goals. In particular, it facilitates the convergence of artificial intelligence technologies with sustainable development initiatives and tells the importance of responsible technological progress for global sustainable development.