How does GVC Participation Shape Firms' ESG Compliance?

In today's highly integrated global economy, global value chains (GVCs) are reshaping not only economic activity but also corporate responsibility. This paper examines how firms' participation in GVCs influences their environmental, social, and governance (ESG) performance, using firm-level data from over 222,000 firms across 159 countries in the World Bank Enterprise Survey. We construct multidimensional ESG indices through a principal component analysis approach and analyze both direct and indirect effects of GVC integration while accounting for firm heterogeneity and potential endogeneity. Our findings show that GVC engagement significantly enhances ESG outcomes, particularly in the environmental and governance dimensions, with larger, older, publicly-owned and manufacturing-sector firms benefiting the most. Female-managed firms, however, face persistent structural barriers. Moreover, firms in developed countries and regions benefit most. Mediation analysis identifies innovation, business strategy, and access to finance as key indirect channels through which GVCs enhance ESG compliance. Robustness checks confirm that deeper integration yields greater sustainability gains, and the results are robust to endogeneity issues.