Unveiling the Dynamics of Green Innovation on <scp>ESG</scp> Performance: The Role of Financial Distress and the Impact of the Paris Agreement

ABSTRACT The field of Environmental Social Governance (ESG) investment has witnessed significant growth in recent decades, driven by the widespread adoption of “carbon neutral” efforts by most nations. Industry would prioritize ESG in a global context characterized by significant uncertainty. Companies derive advantages from the dissemination of ESG data by enhancing their brand reputation, hence attracting investment, reducing borrowing expenses, and augmenting their market value. The findings, especially from the Quantile Regression and Generalized Additive Model studies, provide interesting insights into the interactions of these variables across various industries and countries across time. We implemented a rigorous econometrics methodology that specifically targeted the most prominent corporations in terms of market capitalization in both the Chinese and European markets. Using the Thomson Reuters Eikon database, this study collected data on the top 496 firms from 2012 to 2022. From the analysis, there was a significant positive impact of GRIN on ESG scores across all quantiles, which highlighted the critical role of green innovation in enhancing corporate sustainability. Moreover, a negative relationship between financial distress and ESG was obtained from the findings. Nevertheless, the objective which focused on the period before and after the Paris Agreement underscores the policy's catalytic role in amplifying the effects of green innovation on ESG scores. Therefore, our analysis not only affirms the crucial significance of green innovation in promoting ESG performance but also reveals the complex impact of financial crisis and the magnifying effect of international policies such as the Paris Agreement on these dynamics.