Can ESG ratings drive digital innovation in enterprises? Exploring Porter's hypothesis in the digital era

Zhen Wang

Business Strategy and the Environment, 2025, vol. 34, issue 1, 945-964

Abstract: The holistic reshaping and advancement of the global economy inherently demand the creation of synergies between digitization and environmentally sustainable development practices. This study pioneers an evaluation of the impact of environmental, social, and governance (ESG) ratings on corporate digital technology innovation, contrasting with existing literature. Using data from A‐share listed firms for 2011–2020, our research reveals that implementing ESG ratings stimulates corporate digital technology innovation across various dimensions, thereby confirming the presence of the Porter hypothesis in the digital era. Furthermore, these findings are substantiated through the utilization of various methodologies, such as synthetic difference‐in‐differences (SDID), multi‐period DID, event studies, and staggered DID. In addition, mechanism tests delve into the underlying channels through which ESG ratings stimulate corporate digital technology innovation, elucidating their ability to promote innovation through motivation stimulus and resource supply effects. Moreover, the heterogeneity analysis carried out in this study uncovers diverse effects on digital technology innovation stemming from factors such as firm characteristics, industry competitiveness, industry nature, regional intellectual property protection (IPP), and factor market development. Nevertheless, companies should refrain from blindly pursuing high ESG ratings to avoid overcorrecting because there is an inverse U‐shape relationship between ESG ratings and corporate digital technology innovation. These findings provide the theoretical basis and empirical evidence for the widescale utilization of ESG ratings. Thus, they offer useful guidance for executives and other policymakers aiming to foster a win–win scenario of digitization and green development.

Date: 2025
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