Does energy transition improve ESG performance? Evidence from China's new energy demonstration city pilot

By employing a difference-in-differences (DID) approach and a sample of listed companies in China, we investigate the role of energy transition in improving corporate environmental, social, and governance (ESG) performance under the context of China's New Energy Demonstration City (NEDC) pilot. Research indicates that following the implementation of the NEDC pilot program, the average ESG rating of enterprises in the pilot regions increased by 0.086 points. This positive effect is driven by the strengthening of regional environmental regulations, the improvement of the green finance index, and the expansion of both the scale and quality of corporate green innovation, as well as the growth in the scale and share of green investment. This positive policy effect exhibits significant variation across firms and industries, with non-state-owned enterprises and firms in heavily polluting industries benefiting more from the NEDC pilot. Furthermore, CEOs' experience with environmentally friendly practices and improvements in the quality of corporate disclosure significantly reinforce the policy effect. Our research offers a novel perspective on how the energy transition impacts corporate ESG performance, highlighting the crucial role of policy implementation and corporate governance structures in driving sustainable development.