Can ESG enhance the efficacy of emissions trading systems on enterprise productivity: Evidence from China

Qiang Tu, Jianing Wang, Limei Zuo, Ye Yao and Qiang Ji

Research in International Business and Finance, 2025, vol. 76, issue C

Abstract: The impact of Emissions Trading System (ETS) on firm-level Total Factor Productivity (TFP) is still controversial. With more firms disclosing their Environmental, Social, and Governance (ESG) performance, a key area of interest is understanding the role of ESG disclosures in strengthening the effectiveness of firm-level TFP in the context of ETS. Can ESG disclosures make ETS more effective for firms? And if so, how does this interaction work to improve firm-level TFP? We address these questions by using a difference-in-difference (DID) model. The results show that ESG disclosure enhances the ETS's impact on TFP by 0.155. The combined use of ETS and ESG significantly improves TFP for state-owned and larger firms, particularly in power generation and iron/steel sectors. The underlying influence mechanisms include financing effect, technological innovation effect, and “financing-innovation” chain mediating effect. The study offers insights into designing effective ETS and ESG strategies for government decision-making.

Keywords: Carbon emission trading scheme; Environmental, Social, and governance (ESG); Total factor productivity (TFP); Difference-in-difference (DID) (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925001011

DOI: 10.1016/j.ribaf.2025.102845

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