How Does ESG Performance Matter for Corporate Sustainability Performance? Evidence from China

Using 2010–2021 listed A-share companies as the research sample, we explore the influence of corporate ESG performance on sustainable development performance and the mechanism by which this influence occurs. The results indicate that ESG performance effectively enhances sustainable development performance. Mechanism analyses reveal that ESG performance promotes sustainable development performance through the “reputation effect” and “supervision effect”. Further analyses reveal that among the three dimensions of ESG, the social governance dimension (“S”) plays the most significant role. When environmental regulations are more stringent, green credit guidelines are stronger, internal controls are more effective, and the firm is in a growth or decline phase in its life cycle, the enhancing effect of ESG performance on sustainable development performance becomes more pronounced. Additionally, ESG performance can further enhance a company’s ability to obtain commercial credit and its overall performance. This paper enriches related research on the value effect of ESG and provides insights for listed companies, participants in the capital market, and government departments to emphasize ESG performance and improve ESG incentive policies.