The Impact of Environmental Regulation on Corporate ESG Performance Empirical Studies Based on Deterrent Effects

The concept of sustainable development has been increasingly emphasized by all sectors at home and abroad, but the reality is that environmental performance is not satisfactory, and the market mechanism cannot well solve the problem of conflicting interests between enterprises and society. Based on the deterrence theory in criminal economics, this paper analyzes the internal mechanism of environmental regulation from the perspective of peer influence, and empirically investigates the impact of environmental penalties on ESG scores of target companies. The sample of listed heavy polluters from 2009 to 2022 is analyzed with the data of corporate environmental penalties. The empirical results show that target firms increase their ESG composite scores when environmental penalties are observed, i.e., environmental regulation has a deterrent effect through the peer influence path. In addition, factors such as industry competition intensity, media attention, and executive compensation have an impact on the deterrent effect of environmental regulations, which is reflected in the fact that the stronger the industry competition intensity, the more media attention, and the higher the executive compensation, the stronger the deterrent effect of peer firms. The study concludes that when the government imposes environmental penalties on non-compliant companies, it can improve the deterrent effect of environmental regulations by appropriately increasing the typicality and severity of the penalties, and at the same time exerting the roles of public opinion supervision and industry competition.