Study on the influence mechanism of low-carbon city policy on enterprise ESG performance

China initiated the low-carbon pilot city policies in 2010, 2012, and 2017 to combat climate change and foster a green and sustainable society. The current research seeks to evaluate how low-carbon city pilot policies affect the ESG performance of companies. This paper aims to analyze the pathways and heterogeneity of China's low-carbon city pilot policy on enterprise ESG performance, given that it offers a reference for future improvement of low-carbon city strategies and challenges existing certifications. The results suggest that policies like environmental tax and carbon emission trading make enterprises consider the environmental governance costs and set up special funds for low-carbon development to encourage enterprises to invest more in the environment to enhance the E dimension of enterprises; industrial credit policies increase the market demand for green products and enable enterprises to undertake social responsibilities actively; low-carbon city policies also encourage enterprises to improve the internal governance structure, enhance the information disclosure. Consequently, this paper provides the following policy recommendations: stretching the scope of the pilot program, enhancing financial incentives, and directing the program according to enterprise ownership and industry.