Do ESG ratings promote corporate green innovation? A quasi-natural experiment based on SynTao Green Finance's ESG ratings

Juxian Wang, Mengdi Ma, Tianyi Dong and Zheyuan Zhang

International Review of Financial Analysis, 2023, vol. 87, issue C

Abstract: Corporate efforts in green technology improvements are critical for enhancing sustainability; consequently, how to promote green innovation has attracted scholarly attention. This study explores whether and how environment, social, and governance (ESG) ratings influence corporate green innovation by using an independent third-party rating agency's (SynTao Green Finance) ESG ratings in China as a quasi-natural experiment. We find companies covered by the ESG rating agency significantly increase green innovation output by 3.9%, mainly as an increase in green invention patents. ESG ratings' positive effects on green innovation are more pronounced for firms whose investors are less short-sighted, non-state-owned enterprises and firms with higher degree of financial constraints. Additionally, we find ESG ratings' impact can also increase the green innovation quality and synergetic green innovation. Thus, ESG ratings from third-party institutions can effectively increase corporate green innovation, which has important implications for companies to achieve green transformation and for emerging markets to improve ESG rating systems.

Keywords: ESG rating; Green innovation; Investor monitoring; Management incentive; Information asymmetry (search for similar items in EconPapers)
JEL-codes: G24 G34 O31 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (109)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s1057521923001394

DOI: 10.1016/j.irfa.2023.102623

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