How firms repair stakeholder trust: ESG responses to green innovation failure

Purpose Although green innovation is central to corporate sustainability strategies, its long development cycles and high uncertainty render it susceptible to failure. Counteracting the negative signals of green innovation failure is critical for the successful implementation of corporate sustainability strategies. Drawing on signaling theory, this study aims to investigate how firms respond to green innovation failure through “talk” strategies (environmental, social, and governance (ESG) disclosure) and “walk” strategies (ESG performance) from a trust repair perspective, while also examining the moderating effects of institutional environments. Design/methodology/approach This study employs ordinary least squares (OLS) regression to empirically examine the effects of green innovation failure on ESG disclosure and performance using data from Chinese A-share listed firms from 2011 to 2019. Findings The findings indicate that green innovation failure leads to greater ESG disclosure and enhanced ESG performance in subsequent periods. Moreover, environmental regulation strengthens the positive impact of green innovation failure on ESG disclosure but has no significant effect on the relationship between green innovation failure and ESG performance. In contrast, Confucian culture weakens the positive influence of green innovation failure on ESG disclosure and performance. Originality/value This study examines how firms restore stakeholder trust after green innovation failure through ESG activities. Grounded in signaling theory and the trust repair perspective, this study argues that firms strengthen ESG disclosure and enhance ESG performance to rebuild trust. This study also highlights the distinct roles of formal and informal institutions in shaping these strategies. These findings offer theoretical and practical insights into how firms proactively manage and recover from green innovation failure.