Does environmental, social, and governance (ESG) performance lead to ambidextrous innovation? Integrating stakeholder and institutional theories

The challenges associated with achieving high Environmental, Social, and Governance (ESG) performance have become increasingly critical globally, leading to resource allocation issues, compliance complexities, and potential short-term disruptions in innovation activities, particularly within technology-intensive sectors. Despite the growing importance of ESG initiatives, limited studies in management have explored how ESG performance impacts different dimensions of firm innovation. This study investigates how ESG performance influences ambidextrous innovation, namely exploratory and exploitative innovation, among Chinese-listed new energy vehicle companies from 2009 to 2021. The findings reveal a U-shaped relationship, suggesting that initial ESG investments may hinder innovation owing to resource diversion and regulatory pressures, while sustained ESG efforts eventually lead to significant innovation gains. Government subsidies and market competition act as moderating factors in this relationship. Although both factors generally support innovation, their misalignment with ESG strategies may diminish their positive influence. Moreover, we identify financial constraints and risk propensity as mediating mechanisms. Enhanced ESG performance reduces financing barriers and encourages firms to undertake innovation-related risks. These findings offer important insights for policymakers and managers seeking to align ESG practices with innovation objectives, thereby contributing to more sustainable and balanced innovation outcomes in China and beyond.