Does ESG advantage promote total factor productivity (TFP)? Empirical evidence from China’s listed enterprises

Xiaochen Yu and Yuhang Chen

Applied Economics, 2025, vol. 57, issue 24, 3202-3218

Abstract: The question of whether enterprises are incentivized to improve their environment, society, and governance(ESG)performance is uncertain since scholars have long debated whether or not ESG directly benefits the enterprise. In this study, this research question is addressed by investigating the potential effect on productivity of the net advantage yielded by corporations taking specific ESG behaviours. Using panel data of A-share listed companies spanning from 2010 to 2022, this paper draws multiple research findings. Firstly, the fundamental result of this study shows that the corporate ESG advantages significantly enhance the relevant total factor productivity(TFP). This means that firms have a willingness to adopt behaviours to achieve net ESG advantages due to the productivity gains. Secondly, the heterogeneous analysis indicates that ESG advantages improve TFP for large, state-owned enterprises(SOEs),labour-intensive corporations, and non-mature corporations. Thirdly, in terms of the influential mechanism, ESG advantages improve TFP by enhancing labour expenses and reducing agency costs within the enterprise while assisting enterprises in overcoming external environment uncertainty. The findings illuminate that China’s enterprises are interested in achieving ESG advantages since this enables firms to improve productivity and achieve high-quality development. Simultaneously, this offers novel perspectives for investors to assess ESG performance.

Date: 2025
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DOI: 10.1080/00036846.2024.2336886

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