Can ESG Performance Promote Corporate Green Transformation? Evidence from Green OFDI in China

Xiaochong Li (), Wenwen Dang and Yanxi Li
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Xiaochong Li: School of Maritime Economics and Management, Dalian Maritime University, Dalian 116000, China
Wenwen Dang: School of Maritime Economics and Management, Dalian Maritime University, Dalian 116000, China
Yanxi Li: School of Economics and Management, Dalian University of Technology, Dalian 116000, China

Sustainability, 2025, vol. 17, issue 7, 1-24

Abstract: Under the pressure of the global low-carbon transition, green initiatives have gradually emerged as a critical direction for outward foreign direct investment (OFDI). In the context of China’s high-level opening up, environmental, social, and governance (ESG) performance can promote sustainable development of firms. However, there is lack of research on the influence of ESG performance from the perspective of corporate green OFDI. This study examines the impact mechanism of ESG performance on corporate green OFDI in terms of its propensity and depth, using a sample of Chinese A-share listed firms from 2009 to 2023. The findings indicate that ESG performance promotes corporate green OFDI, a result that remains robust after a series of endogeneity and robustness tests. The internal mechanism analysis reveals that ESG performance enhances corporate green OFDI by reducing financing constraints and managerial myopia and by promoting risk-taking and foreign institutional investors’ shareholdings. The external mechanism analysis verifies that ESG institutional constraints in the home country and ESG locational advantages in host countries strengthen the positive effect of ESG performance on corporate green OFDI. Further analysis shows that ESG performance facilitates corporate green innovation development through collaborative and independent innovation by promoting corporate green OFDI. By extending the theoretical understanding of the impact of ESG performance on the process of corporate green OFDI, this study provides strategic guidance for the sustainable development of firms in China and other similar developing countries.

Keywords: ESG performance; green OFDI; ESG institutional constraints; ESG locational advantages; green transformation (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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