Can the Carbon Emission Trading System Improve the Environmental, Social, and Governance Performance of High–Carbon Emission Enterprises? Evidence from Chinese Listed Companies

Abstract This study examined the impact of China’s carbon emission trading system (ETS) pilot program (2007–2021) on the environmental, social, and governance (ESG) performance of listed companies in high–carbon emission industries using a difference-in-differences model. Benchmark regression results show that ETS significantly enhances corporate ESG performance, supported by robustness tests including parallel trends, individual/time placebo tests, and omitted variable analysis. The effect is stronger for non-state-owned enterprises, manufacturing companies, and those in central or western China. ETS improves ESG performance by reducing industry concentration (external driver) and alleviating financing constraints while boosting carbon performance (internal drivers), although social attention shows limited influence. The findings provide empirical evidence for refining the ETS policies in China and globally to aid sustainable transitions in high–carbon emission industries through market-driven environmental governance and corporate accountability.