Unlocking ESG Performance: How Qualified Foreign Institutional Investors Enhance Corporate Sustainability in China’s Capital Markets

This study is motivated by the rising global demand for sustainable development and the increasingly important role of foreign institutional investors in shaping corporate behavior in emerging markets. It aims to investigate whether and how qualified foreign institutional investors (QFIIs) influence the Environmental, Social, Governance (ESG) performance of Chinese listed companies. Using panel data from Chinese A-share listed firms between 2009 and 2022, this study employs a two-way fixed-effects model to examine the impact of QFII shareholding on corporate ESG performance and its underlying mechanisms. The findings reveal that QFIIs significantly enhance ESG performance, primarily through promoting green technology innovation, green investment, and green expenses. Furthermore, a composite index of information transparency is developed to investigate its moderating effect, uncovering a substitution effect: QFIIs’ marginal governance impact diminishes in highly transparent firms. Notably, the mediation analysis reveals that QFIIs enhance ESG performance through multiple environmental investment pathways—green innovation, green investment, and green expenses—while the moderating effect of information transparency suggests that QFIIs exert greater influence in less transparent firms. This research advances the theoretical understanding of foreign institutional investors’ influence on sustainability in emerging markets and provides actionable insights for policymakers seeking to align foreign capital with green transition goals.