From Carbon Constraints to Digital Solutions: How Climate Governance Drives Corporate Transformation in China

With climate governance playing an increasingly crucial role in driving the low-carbon transition and digital transformation being regarded as vital for sustainable development, China has formulated a comprehensive climate governance system with the Carbon Emissions Trading Scheme (CETS) at its core. This research utilizes the implementation of China’s CETS as a quasi-experimental setup to explore how climate governance enables corporate digital transformation to support the low-carbon transition. Findings show that climate governance remarkably boosts corporate digital transformation by 18.8%, mainly by relieving financing limitations and encouraging green technological innovation. Nonetheless, the “crowding-out impact” of regulatory environmental measures and the “policy replacement impact” of eco-friendly loans somewhat dampen these beneficial influences. Findings from the heterogeneity analysis indicate that the positive influence of climate governance is more evident in areas where the public has a greater awareness of the environment and in industries that are not major polluters, demonstrating differences in geographical and industrial features. Based on the research findings, this paper will provide comprehensive suggestions for improvement in institutional factors, financial and innovation support, differentiated implementation, and policy coordination. The suggestions will provide both theoretical and empirical insights for enterprises to advance towards achieving the integrated development of low-carbon economy and digitalization.