<scp>ESG</scp> , Policy Uncertainty and Green Innovation

ABSTRACT China's energy sector is central to national economic growth and industrialization, yet it faces mounting environmental challenges due to its heavy reliance on coal‐based energy. Grounded in real‐options theory and stakeholder theory, this study examines the relationship between corporate environmental, social and governance (ESG) initiatives, firm‐perceived economic policy uncertainty (FEPU) and green innovation strategy (GIS) in China's energy industry. Using a panel of 1203 Chinese A‐share‐listed energy firms from 2010 to 2023, we find that ESG initiatives significantly promote GIS, with stronger effects observed in utility‐oriented green innovations and social dimension–driven ESG activities. Moreover, FEPU positively moderates the ESG–GIS relationship, highlighting the dual role of policy uncertainty as both a constraint and a catalyst for strategic innovation. Heterogeneity analyses indicate that this relationship is more pronounced among larger firms, low‐leverage firms, state‐owned enterprises and non‐new‐energy firms. Further evidence shows stronger effects in the post‐Paris Agreement period, while FEPU's moderating role is more evident before COVID‐19. Overall, the findings offer important implications for policymakers and corporate leaders seeking to foster sustainable innovation under regulatory uncertainty.