Can financial success drive sustainability? Exploring the role of eco-innovation in enhancing ESG outcomes in Chinese companies

Chen Anqi, Ong Tze San, Ridzwana Mohd Said and Soh Weini

International Journal of Innovation and Sustainable Development, 2025, vol. 19, issue 4, 490-512

Abstract: This study examines how financial performance influences environmental, social, and governance (ESG) outcomes among Chinese firms, focusing on the moderating effect of Eco-innovation. Using panel data from 2011 to 2021, fixed effects and generalised method of moments (GMM) methods address potential endogeneity. The results show that higher financial performance, measured by return on assets (ROA), is associated with better ESG scores, and this relationship is strengthened by Eco-innovation. A robustness check using earnings before interest and taxes to total assets ratio (EBIT) supports these findings. Unlike prior research (Sun, 2024; Liu et al., 2024), which examines ESG disclosures and green innovation, this study highlights how Eco-innovation enhances the link between financial performance and ESG. The findings have important implications for regulators in China, where policies such as the Green Finance Guidelines and the Environmental Protection Tax Law encourage sustainable practices. Policymakers could increase green innovation incentives through tax relief and subsidies, further aligning financial success with sustainability.

Keywords: ESG; environmental, social, and governance; eco-innovation; financial performance; sustainable development. (search for similar items in EconPapers)
Date: 2025
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