Unleashing ESG potential: How sustainability drives innovation in Chinese listed companies

As sustainability expectations intensify in China, the role of ESG performance in promoting corporate innovation has gained growing attention. Using data on Chinese A-share listed firms from 2009 to 2022, this study finds that stronger ESG performance significantly increases firms’ innovation output, including invention and granted patents. Mechanism tests show that ESG enhances innovation by improving internal control quality, easing financing constraints, and expanding R&D investment. Heterogeneity tests reveal that the positive impact of ESG is stronger for high-tech firms and non-state-owned enterprises. In addition, robustness tests using alternative samples and instrumental-variable estimation further confirm the reliability of the core findings. Overall, the results demonstrate that ESG performance is an important strategic driver of technological progress and long-term development in Chinese firms. The findings offer policy-relevant evidence on how sustainability practices can reinforce innovation capacity and support high-quality economic growth.