How Do ESG Ratings Affect Corporate Green Transformation: Evidence From China

Corporate green transformation represents a critical pathway toward achieving high-quality economic development and fulfilling the “dual carbon†targets. Concurrently, environmental, social, and governance (ESG) ratings are emerging as a core market-based governance mechanism to steer corporate sustainable development trajectories. This study empirically investigates the effect of ESG ratings on corporate green transformation and its underlying mechanisms, using panel data from Chinese A-share–listed companies from 2009 to 2022. The findings reveal the following: First, ESG ratings significantly promote corporate green transformation. This conclusion remains robust after a series of endogeneity and robustness tests, including the instrumental variable method. Second, the cost of debt financing, institutional investor attention, and green technology innovation are identified as mediating channels. Specifically, ESG ratings facilitate corporate green transformation by reducing the cost of debt financing (resource pathway), attracting the attention of institutional investors (governance pathway), and fostering green technology innovation (capability pathway). Third, the enabling effect of ESG ratings on corporate green transformation exhibits significant heterogeneity; the promotional effect is more pronounced for state-owned enterprises, large-scale firms, and companies in nonheavy-polluting and high-technology industries. Therefore, to fully unleash the empowering effect of ESG ratings on corporate green transformation, it is crucial to enhance the transmission mechanisms through capital markets, corporate governance, and corporate capabilities.