Does Environmental Social Governance Performance Promote Green Innovation? Evidence From <scp>US</scp> Firms

ABSTRACT I examine the relationship between green innovation and ESG performance using a panel of 4920 US public firms over 2013–2022. Estimates from two‐way fixed‐effects models show that improved ESG performance is positively and significantly associated with greater green innovation. This relationship is mediated by reduced financing constraints and is more pronounced among firms with higher liquidity. To support the robustness of our results, I present both the outcome of system generalized method of moments (GMM) and the two‐stage least squares (2SLS) estimations. To our knowledge, this study is the first to provide evidence of the relationship between ESG performance and green innovation in the context of US public firms. The findings suggest that stronger ESG disclosure standards could incentivize firms to invest in green technologies, thereby promoting sustainable innovation.