The ESG improvement path for heavily polluting enterprises: Specialized division of labor and outsourcing under the energy-consuming rights trading policy

Fully leveraging market-based environmental regulations can stimulate the energy conservation and emissions reduction of heavily polluting enterprises, thereby promoting sustainable development. Thus, this important issue should be addressed to improve the national environmental governance system during China's high-quality development stage. Taking the implementation of the energy consumption rights trading system (ECRTS) as an example, using panel data of heavily polluting enterprises from 2012 to 2021, Huazheng environmental, social, and governance (ESG) score, and provincial energy-consuming rights trading (ECRT) pilot data, this study employs the difference-in-differences method, subsample regression, and instrumental variable method to examine the effects and action mechanisms of market-based environmental regulations on the sustainable development of heavily polluting enterprises. The results suggest that the ECRTS has significantly improved the ESG performance of heavily polluting enterprises, with the results remaining robust after various sensitivity tests. Additionally, mechanism testing indicates that the ECRTS has improved the ESG performance of heavily polluting enterprises through energy conservation and emissions reduction, external monitoring, and market incentives. Further investigation into the mechanism pathway found that heavy polluting enterprises are more inclined to opt for production outsourcing to meet regulatory policy requirements than to rely on their own technological breakthroughs to achieve clean production. Using heterogeneity analysis, this study found that ECRTS-driven enhanced ESG performance was more pronounced in large firms, non-state-owned enterprises, and those in non-growth phases or competitive industries. The innovations of this article lie in two aspects: first, integrating the ECRT with enterprises’ comprehensive ESG performance into a unified analytical framework, which deepens the understanding of the micro-mechanisms through which market-based environmental regulations affect corporate sustainable development; second, by exploring the production and operation strategies of heavily polluting enterprises under the ECRT, it reveals the behavioral characteristic that enterprises are more inclined to choose production outsourcing to respond to environmental regulations. These findings provide new perspectives for theoretically exploring the sustainable development of heavily polluting enterprises and offer empirical evidence for developing and improving market-oriented environmental regulation policies.