Can ESG Promote Sustained Innovation in Specialized, Innovation-Driven SMEs? Evidence from China’s “Specialized, Refined, Unique, and Innovative” Enterprises

Sustained innovation is pivotal for establishing long-term technological advantages and ensuring corporate sustainability, which holds particular significance for “specialized, refined, unique, and innovative” (SRUI) enterprises that concentrate on niche segments and are innovation-intensive. Grounded in signaling theory and principal–agent theory, and situated within the practical context of financing constraints, this paper investigates how environmental, social, and governance (ESG) performance contributes to sustaining innovation in such firms. Using panel data from Chinese SRUI enterprises between 2010 and 2023, we measure sustained innovation along two dimensions: sustained innovation input and sustained innovation output. The results demonstrate that ESG performance significantly enhances sustained innovation among SRUI enterprises. Mechanism analysis reveals that ESG operates through three pathways: optimizing talent structure, mitigating managerial myopia, and strengthening working capital management. Heterogeneity tests further indicate that the positive effect of ESG on overall innovation sustainability is stronger with a younger management team and lower government subsidies. Moreover, in firms with heightened climate risk perception, ESG strongly promotes the sustained innovation input but exhibits a weaker effect on the continuity of innovative output. In enterprises with stronger big-data technology application capabilities, ESG significantly improves the continuity of patent output yet does not significantly affect the continuity of innovative input. This study extends the literature on the economic consequences of ESG from the perspective of sustained innovation, while providing new mechanistic evidence for understanding how highly specialized small and medium-sized enterprises build long-term innovation capacity.