The impact of carbon emission reduction policies on corporate ESG performance: evidence from low-carbon city pilots

Viewing China’s low-carbon policy pilot cities as a quasi-natural experiment, we use data on A-share companies listed on the Shanghai and Shenzhen stock exchanges from 2009 to 2021 to construct a multi-period double-difference (difference-in-difference) model and investigate the impact of low-carbon city pilot policies on firms’ ESG performance and its mechanisms. The results show low-carbon city pilot policies significantly enhances corporate ESG performance, a conclusion that holds after a series of robustness tests. A mechanism test indicates that the low-carbon city pilot program enhances corporate ESG performance by strengthening corporate internal controls, promoting green innovation, and restraining emission behavior. In particular, it significantly boosts corporate ESG performance by virtue of the interaction effect between corporate internal controls and green innovation. A heterogeneity analysis shows the low-carbon city pilot policies are most effective in enhancing ESG performance for state-owned enterprises, mature firms, and non-polluting industries. Meanwhile, research on the impacts of specific industries and different policy implementation stages was carried out. Further analyses show the low-carbon city pilot policies promote firms’ ESG performance by increasing R&D investment, and the analysis of sub – samples verifies the long – term effectiveness of the policies.