From green factories to ESG performance: How policy incentives shape a new paradigm for corporate sustainable development

Dongsheng Guo and Jianda Wang ()
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Dongsheng Guo: University of International Business and Economics, School of International Trade and Economics
Jianda Wang: China University of Geosciences, School of Economics and Management

Economic Change and Restructuring, 2025, vol. 58, issue 6, No 13, 33 pages

Abstract: Abstract With the growing global emphasis on sustainable development, Environmental, Social, and Governance (ESG) performance has become a critical criterion for evaluating corporate competitiveness and long-term value. While existing studies have examined the drivers of ESG adoption, relatively little is known about the role of green industrial policy in shaping firms’ ESG outcomes. This study addresses this gap by investigating the impact of China’s Green Factory Pilot Policy on the ESG performance of A-share listed firms. Drawing on panel data covering 2009 to 2023, we construct a multi-period difference-in-differences (DID) model to estimate the causal effects of the policy. To ensure the validity of the findings, we conduct parallel trend tests, multi-period heterogeneous treatment effect tests, and a series of robustness checks. The results show that the Green Factory Pilot Policy significantly enhances the ESG performance of pilot enterprises. Mechanism analysis further reveals that the policy indirectly enhances ESG performance primarily by strengthening executives’ green awareness, increasing the proportion of managers with green backgrounds, and raising the level of attention from both investors and the public. Moreover, the heterogeneity analyses reveal that the policy’s effectiveness is stronger for firms located in eastern regions, larger firms, financially unconstrained firms, and those operating in highly concentrated markets. Overall, this study contributes by showing that government-led green industrial policies can effectively promote corporate ESG adoption, offering both theoretical insights into sustainability research and practical implications for policy design in emerging economies.

Keywords: Environment; society; and governance (ESG); Green factory; Executive green awareness; Investor attention; China (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10644-025-09945-5

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