The Impact of ESG Ratings on Corporate Sustainability: Evidence from Chinese Listed Firms

Qi Gong, Jiahui Gu, Zhaoyang Kong (), Siyan Shen, Xiucheng Dong, Yang Li and Chade Li ()
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Qi Gong: International Business Strategy Institute, University of International Business Economics, Beijing 100084, China
Jiahui Gu: International Business Strategy Institute, University of International Business Economics, Beijing 100084, China
Zhaoyang Kong: Business School, University of International Business and Economics, Beijing 100029, China
Siyan Shen: Research Institute for Global Value Chains, University of International Business and Economics, Beijing 100029, China
Xiucheng Dong: School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China
Yang Li: International Business Strategy Institute, University of International Business Economics, Beijing 100084, China
Chade Li: PowerChina Beijing Engineering Co., Ltd., Beijing 100024, China

Sustainability, 2025, vol. 17, issue 13, 1-26

Abstract: As participants in sustainable development, corporations face the important and controversial issue of whether they can promote corporate sustainability through environmental, social, and governance (ESG) practices. To address this issue, we examine the relationship between ESG performance and corporate sustainability, measured by green total factor productivity (GTFP). Using a panel dataset of 17,559 firm-year observations from non-financial firms listed on the Shanghai and Shenzhen stock exchanges in China between 2011 and 2019, we employ fixed-effects regression models and two-stage least squares (2SLS) with instrumental variables to empirically test the impact of ESG ratings on GTFP, identify the underlying mechanisms, and examine potential heterogeneity across firms. The results show that higher ESG ratings are significantly associated with increased GTFP. Mediation analysis further reveals that this positive relationship operates through reduced financing constraints and enhanced green innovation. Notably, the mediating role of financing constraints is more pronounced for firms with greater reliance on external capital. Heterogeneity analysis indicates that ESG ratings exert stronger effects in eastern regions, pollution-intensive sectors, and state-owned enterprises. These findings provide empirical support for the role of ESG performance as an effective mechanism to advance corporate sustainability through ethics-driven financial access and innovation capability.

Keywords: business ethics; green total factor productivity; financing constraints; green innovation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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