Digital Transformation and ESG Rating for Industry 5.0 in the Chinese Manufacturing Industry

With the introduction of Industry 5.0, which emphasizes greater social responsibility and sustainable development for companies, it is imperative to explore the intricate relationship between digital transformation (DT) and environmental, social, and governance (ESG) rating. This study aims to understand how DT impacts ESG rating, considering the evolving competitive advantage of firms from the perspectives of resource-based view theory (RBV) and knowledge management (KM) theory. This study examines the relationship between DT and ESG rating, as well as the mediating effect of green innovation (GI) in this relationship. Utilizing data from 360 Chinese manufacturing firms listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2010 to 2022, the findings reveal that with the exception of digital technology and data analysis, DT was shown to have significant impacts on corporate ESG rating. Specifically, digital business strategy and leadership, and human resource capabilities and culture showed positive relationships, while transformative organization and operations exhibited a negative relationship. Furthermore, GI was found to mediate the relationship between DT and ESG rating. By uncovering the internal mechanisms through which DT affects ESG rating, this study provides valuable insights for companies looking to enhance their sustainable practices within the framework of Industry 5.0.