Jurnal 1

Technology in Society 68 (2022) 101906
Contents lists available at ScienceDirect
Technology in Society
journal homepage: www.elsevier.com/locate/techsoc
The effect of ESG rating events on corporate green innovation in China: The
mediating role of financial constraints and managers’
environmental awareness
Yafei Tan, Zhaohui Zhu *
School of Accounting, Zhejiang Gongshang University, Hangzhou, 310018, China
A R T I C L E I N F O A B S T R A C T
Keywords: The effectiveness of environmental, social, and corporate governance (ESG) ratings has been widely discussed
ESG rating events and is often linked to corporate financial performance by academics and practitioners. However, a significant
Green innovation research gap remains unexplored, specifically, measuring the underlying mechanisms between ESG ratings and
Financial constraints
corporate green innovation in developing countries. This study unpacks the quasi-natural experiment based on
Managers’ environmental awareness
the 2015 ESG rating of the SynTao Green Finance Agency to investigate how ESG ratings affect corporate green
innovation based on data relating to Chinese A-share listed companies between 2010 and 2018. The results show
that ESG ratings significantly promote the quantity and quality of corporate green innovation and are mediated
by alleviating financial constraints and increasing managers’ environmental awareness. In this context, the
higher the ESG rating score, the more apparent is the promotion effect. Furthermore, stricter environmental
regulations, increased market competition, and companies in their growth period strengthen the association
between ESG ratings and green innovation. This study provides scientific evidence for the role of ESG ratings in
promoting proactive green innovation and deepening green development in China.
1. Introduction effectiveness of ESG ratings, most of which examine the relationship

between ESG ratings and corporate financial performance [9,10] or
Environmental, social, and corporate governance (ESG) is an capital market responses [11,12]. However, very few studies explore
extension and enrichment of the socially responsible investment (SRI) corporate sustainability investment responses after ESG ratings are
concept and is an important measure of corporate sustainable develop made, with even fewer looking at their effect on corporate green inno
ment [1,2]. With the rise of the green concept, an increasing number of vation. Chouaibi (2021) analyzes ESG practices in the British and
companies accept the evaluations of ESG rating agencies. Nevertheless, German systems to improve financial performance by benefiting from
existing studies on responses to ESG rating validity are controversial. green innovation [13]. Meanwhile, Cohen (2020) arrived at different
Scholars in support of ESG ratings argue that such appraisals objectively conclusions and identified an opposite relationship between ESG scores
and effectively measure a company’s ESG efforts through its corporate and green innovation in the United States energy industry [14]. Existing
competitive advantage, social reputation, and operating performance to studies are limited and largely focus on developed countries with rela
furnish stakeholders with comprehensive and comparable data to re tively mature ESG systems. Moreover, the mechanism of the relationship
dress information asymmetries [3], provide resource access, and reduce between ESG ratings and green innovation has not been studied
regulatory and reputation risks [4,5]. Contrastingly, other scholars in-depth, and the results are not universal. As the largest emerging
argue that ESG ratings are ineffective, believing that ESG ratings will economy, China is acutely aware of the social and environmental issues
lead companies to symbolically comply with external requirements to arising during its economic transition [15], meaning that ESG ratings are
gain various benefits, which may not necessarily meaningfully improve expected to become the focus of academic attention in China. Hence, the
their corporate sustainability behavior [6]; instead, they represent present study analyzes the effectiveness of ESG ratings for developing
institutional retrogression and may mislead stakeholders [7,8]. These countries and whether they contribute to the substantial improvement
contrasting views have prompted a great deal of research into the of green innovation remains to be explored to a large extent.
* Corresponding author.
E-mail addresses: tanyafei5782@163.com (Y. Tan), zhuzhaohui_zz@163.com (Z. Zhu).
https://doi.org/10.1016/j.techsoc.2022.101906
Received 20 September 2021; Received in revised form 21 January 2022; Accepted 22 January 2022
Available online 26 January 2022
0160-791X/© 2022 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Y. Tan and Z. Zhu Technology in Society 68 (2022) 101906
China’s rapid economic development has given rise to serious envi As emerging markets are continually developing, examining the het
ronmental problems. In response, green innovation has become a key erogeneity in the Chinese context from a multidimensional perspective
driver of green development [16]. Green innovation is a technological of institutional, market, and corporate offers a realistic point of refer
innovation activity that adheres to the requirements of eco-economic ence for the promotion of ESG ratings.
development to achieve resource conservation and environmental pro The remainder of this paper is arranged as follows. Section 2 outlines
tection [17]. Green innovation entails large investments, high risks, and the background to ESG ratings, the theoretical analysis and the research
long return periods [18]. On this basis, companies in developing coun hypotheses. Section 3 describes the research design. Section 4 presents
tries often lack the resources and motivation to pursue green innovation, the empirical results, mediation effects, and robustness checks. Section 5
requiring multi-organizational efforts and value co-creation. ESG ratings presents further research on heterogeneity analysis, and Section 6 pro
are the common value orientations of multiple players in the market vides the conclusions and enlightenment.
[19]. As such, the question to be answered in this study is whether ESG
ratings can internalize the environmental externalities of companies and 2. Background and hypotheses
shift from reactive governance to proactive green innovation. Most
studies use the number of green patent applications and grants to 2.1. Background
measure green innovation. However, green patents are heterogeneous
[20], and this approach may be biased [21]. The explosive growth in the In 1992, the United Nations Environment Programme Finance
number of patents may lead to a patent bubble, which does not increase Initiative (UNEP FI) proposed that companies should only make in
the actual quality of innovation. Meanwhile, increased citations of vestment decisions after fully considering all factors related to the
subsequent green patents indicate a higher commercial value of patents environment, social responsibility, and corporate governance (ESG)
[22,23], representing the quality of corporate green innovation. [26]. Since then, ESG information has been increasingly used in
Therefore, investigating this issue from the two dimensions of the corporate investment decisions. Its three constituent elements have
quantity and quality of green innovation provides a more comprehen gradually become the three most important dimensions considered by
sive interpretation of whether and how ESG ratings affect corporate the international community when measuring the sustainability of en
green innovation in emerging markets. terprises [27]. As the concept of green investment is progressively being
This study uses data on Chinese listed companies from 2010 to 2018 taken more seriously by the capital markets, the most influential inter
to examine the impact of China SynTao Green Finance’s ESG rating national rating agencies (i.e., MSCI, Bloomberg, and Standard & Poor’s)
announcement on the quantity and quality of corporate green innova have researched ESG rating systems to scientifically and accurately
tion through the difference-in-differences (DID) model and the ordinary assess companies’ environmental, social risks, and corporate gover
least squares (OLS) regression analysis method, which are applied to nance performance [28]. China has paid considerable attention to ESG
overcome endogenous problems. Subsequent empirical verification ratings and recognized them as a reflection of the sustainable develop
demonstrates that ESG-rated companies promote green innovation ment concept at the firm level since 2015. Chinese business philosophy
significantly more than non-ESG-rated companies. Moreover, the higher and culture differ from Western developed countries; therefore, the
the ESG rating score, the better it can simultaneously promote the existing international ESG rating system cannot accurately identify the
quantity and quality of corporate green innovation. The information rating system in line with Chinese companies. China’s third-party or
asymmetry theory and the upper echelons theory suggest that post-ESG ganization SynTao Green Finance first started issuing ESG ratings in
rating companies can alleviate financing constraints and enhance 2015 [29], which considers corporate management and long-term
managers’ environmental awareness, thereby promoting the quantity benefits accruing to society from multiple dimensions. Since then, it
and quality of corporate green innovation. Furthermore, the positive has become a vital investment indicator for stakeholders to guide funds
impact on those companies operating in areas with strict environmental and fully support corporate sustainable development. It also provides a
regulations and fierce market competition is more significant, and reference for financial institutions to identify the potential benefits and
companies in their growth period are more likely to promote corporate market opportunities stemming from corporate green innovation in
green innovation after actively obtaining ESG ratings. China.
The main contributions of this study are as follows: First, it responds
to the debate surrounding the effectiveness of ESG in emerging markets 2.2. Hypotheses
by providing fresh insights into the relationship between corporate ESG
ratings and green innovation as well as its mechanisms of action. Against the backdrop of the increasing prevalence of green devel
Existing research on ESG ratings mainly focus on developed markets in opment concepts, it is of great significance to study the impact of ESG
which relatively mature concepts have been formed. Contrastingly, ratings on corporate green innovation. ESG ratings are not only recog
emerging markets are still in their infancy due to significant differences nized by authoritative third-party rating agencies but also reflect the
in systems. The conclusions of this study help answer whether ESG recognition of corporate achievement by government and financial in
ratings contribute to green transformation and enrich the results relating stitutions in socially responsible investment [30], and send out the
to ESG practices in developing countries. Second, this study further positive signal of a good corporate image to the capital market [31].
expands the factors influencing green innovation, transcending the Available funds and management attitudes are the main factors that
mainstream research paradigm of government-level environmental affect corporate green innovation, as they form an essential foundation
regulations on green innovation [24,25], specifically highlighting for achieving sustainable development strategies [32]. An ESG rating
third-party rating agencies and offering new perspectives and empirical event will force companies to take the initiative to improve their man
support for ESG ratings guiding role in promoting green innovation. agement and information disclosure levels. ESG-rated companies send
Third, this study expands the measurement of green innovation to positive signals to stakeholders, implying that they will pursue a green
compensate for the existing literature’s preference for the quantity of transformation strategy. Therefore, this study considers that ESG ratings
green innovation rather than quality. Drawing on China’s detailed pat can alleviate information asymmetries and reduce financial constraints
ent census data, this study utilizes green patent citations to measure the while simultaneously conveying the managers’ attitudes towards green
quality of green innovation, conducive to deriving more meaningful investment to external stakeholders.
research topics that emphasize both quantity and quality of green First, ESG ratings alleviate the financial constraints that companies
innovation and increase their influence. Fourth, this study analyzes the are subject to. Green innovation is characterized by substantial initial
mechanism of action between ESG ratings and green innovation through capital investment, a long profit cycle, and unpredictable risk [33].
funds resources and managerial attitudes to deconstruct internal logic. Therefore, it must be supplemented with sufficient financial support to
2
address market failure problems such as environmental externalities; the develop and update their technology to protect their interests, and raise
availability of funds plays a vital role in green innovation [34]. Under the barriers to entry for their competitors [47]. The benefits of ESG
the premise of information asymmetric theory in the capital market, ratings are long-term, with management being the primary beneficiary
companies can distinguish themselves from competitors by disclosing of ESG ratings [48]. Practically, this makes them more concerned about
high-quality information to access stakeholder resource support [35]. health, environmental, and social issues than shareholders [49], moti
An ESG rating is an important means of redressing information asym vating management to be better and more creative in managing the
metry between stakeholders and companies. This is because it considers company. To a certain extent, ESG rating events have contributed to
corporate social responsibility and long-term sustainable development, promoting managers’ awareness of the importance of green behavior for
except for corporate governance, management capabilities, and finan the long-term development of the company and society more broadly. A
cial status, thus helping financial institutions better understand financial management team with high ecological awareness regards the reduction
and non-financial corporate information to provide green funds to of adverse environmental impacts as an aspect of corporate re
companies during credit evaluation [36]. According to the normative sponsibility and improving production technology as the primary means
legitimacy theory, companies are motivated to make more proactive through which the company reduces its environmental pollution.
environmental management decisions through green innovation to Therefore, a high ecological risk awareness management team strongly
respond to the public pressure flowing from the invisible social contract motivates green technology innovation [50]. Meanwhile, they can
with stakeholders [37]. ESG ratings are a mechanism for companies to keenly identify the green resources provided by financial institutions,
internalize the external costs of environmental pollution through in investors, and other stakeholders and use them wisely to improve their
formation disclosure and replace low-level environmental end-of-pipe corporate green innovation capability. ESG ratings can further
governance by improving their technology for green innovation to a encourage companies to formulate green innovation strategies and
level that satisfies the green requirements of stakeholders [38]. More enhance their green technological capabilities through managers’
over, institutional investors tend to exhibit an apparent preference for increased awareness of environmental protection.
ESG investments to avoid the risk of adverse selection [39]. ESG-rated
H1a. Corporate green innovation significantly improves after an ESG
companies improve their ESG performance and the quality of informa
rating event.
tion disclosure, which can alleviate market concerns stemming from
information asymmetry and allow them to attract more external capital H1b. The ESG ratings of listed companies can promote corporate green
[40]. For those companies that perform poorly after an ESG rating event, innovation by alleviating financing constraints.
investors often ’’vote with their feet’’ to deal with the penalties and legal
H1c. The ESG rating of listed companies can promote corporate green
risks caused by corporate environmental pollution, which manifest
innovation by raising managers’ environmental protection awareness.
through risk premiums or investment cuts, forcing companies to accept
higher financing costs. As the disclosure of ESG ratings has become In summary, Fig. 1 shows the main variables that this study focuses
commonplace, rated companies have become more transparent and on, integrates the research hypotheses from Section 2, and further
relatively less risky than unrated companies, which can meet investors’ analysis from Section 5 to construct a theoretical framework, thus
risk-aversion needs [41]. An excellent ESG rating performance can demonstrating the research path and heterogeneity analysis of ESG
establish a positive social image and enhance the company’s corporate ratings to promote corporate green innovation.
reputation, thus increasing capital providers’ confidence in the com
pany, reducing the decision-making risks of creditors and investors, and 3. Research design
minimizing information asymmetries. Accordingly, companies receive
more investment from the capital market and financial institutions to 3.1. Sample selection and data sources
reduce the risk of green innovation due to an imbalance in capital
allocation. Easing financing constraints provides companies with suffi To control for the endogeneity of the relationship between ESG rat
cient funds to carry out technological improvements, energy-saving ing and corporate green innovation in this study, the ESG rating event of
programs, and other environmental measures to achieve a virtuous the announcement by SynTao Green Finance in 2015 was chosen to
development cycle. conduct a quasi-natural experiment using the difference-in-differences
Second, ESG ratings raise awareness of environmental protection method to carry out testing. Based on international practices, SynTao
among managers. An excellent ESG rating means that the company’s Green Finance combines China’s development stage and the actual sit
status and development prospects have been recognized by the market, uation of outstanding environmental protection issues to publish ratings
sending out a positive signal about the company’s future development for China’s A-share listed companies. It is one of the leading third-party
prospects, increasing market attention, and providing more character agencies recognized by an international authoritative professional credit
istic information indicating the company’s management attitude. Based rating agency to proceed with ESG ratings in China. As it is necessary to
on the upper echelons theory [42], as a vital force of the organization, compare the changes in corporate green innovation before and after the
the cognitive behavior of management determines the company’s ESG rating, this study selects A-share listed companies from 2010 to
development strategy. By implementing progressively stricter environ 2018 as the initial sample. The ESG rating data comes from the ESG
mental policies, companies will face both governance and database of Wind SynTao Green Finance, whereas the green patent data
non-governance pressures, such as those relating to reputation, super are collected manually from the China National Intellectual Property
vision, and litigation, which will lead them to be more concerned about Administration (CNIPA), and other economic characteristics data are
green governance [43]. Zhang et al.(2015) found that executive envi obtained from the CSMAR. The sample is screened to: (1) exclude listed
ronmental awareness leads managers to incorporate green elements into companies in the financial sector; (2) exclude listed companies issuing B
their daily management activities [44]. Crucially, the pressure of senior and H shares; and (3) exclude ST, *ST, and related data with missing
management from the company is a key driver of corporate green financial data. The selected continuous variables are winsorized at the
innovation. The upper echelon cognitive theory posits that senior 1% and 99% levels to eliminate the influence of extreme values, control
managers act according to their perceptions of the dynamic environ the year and firm fixed effects, and perform clustering.
ment, and the attention brought by ESG rating enables stakeholders to
externally supervise the company, which will, in turn, influence the 3.2. Variable selection
managers’ environmental awareness [45,46]. An ESG rating event at
tracts the media, analysts, and investors, leading companies to further Dependent variable: Corporate green innovation. Most existing
improve their executive environmental awareness, continuously studies break down green innovation into different dimensions or types,
3
Fig. 1. Hypothetical framework.
such as green product innovation and process innovation [51]. As it is

Table 1
challenging for Chinese companies to obtain eco-labeled product certi
The brief descriptions of the variables.
fications and green R&D, green patents are selected as the most common
and widely recognized green innovation measurement indicator [52]. Variable Description
On this basis, this study first uses the natural logarithm of the number of GINUM The green innovation quantity is the natural logarithm of the number of
green patent applications in period t+1 to measure the quantity of green green patent applications for company i in the year t+1.
GICIT The green innovation quality is the natural logarithm of the number of
innovation (GINUM), as set out in previous literature [53]. Second,
green patent citations for company i in the year t+1
scholars such as Jaffe and Rassenfosse (2017) and Boeing and Mueller ESG The listed company i in the list of ESG rating in the year t, ESG takes a
(2019) have provided sufficient evidence that the number of citations is value of 1 after the year t and equals 0 before the year t. If a company
more convincing than the number of patents [22,54]. Therefore, this not listed on the ESG rating has a value of 0 in all years.
study follows the methods of Rong et al. (2017) to represent the quality Roa Net profit divided by average total assets
Lev The total liabilities are divided by the total assets
of green innovation (GICIT) by calculating the natural logarithm of the
Age The duration of the sample year
number of citations received by companies for green patents applied for Cash Net cash flow from operating activities divided by current assets
in the t+1 year [55]. Size The natural logarithm of total assets
Independent variable: ESG rating (ESG). The core explanatory vari Gov When the state is the largest shareholder or a state-owned enterprise, it
ables of this study selected the ESG rating data established by the Syn takes a value of 1; otherwise, it is 0.
Holder Percentage of shares held by the largest shareholder
Tao Green Finance Corporation. According to SynTao Green Finance’s Inst The number of shares held by institutional investors divided by the
ESG rating first announced in 2015, the relevant dummy variables are total number of shares
set based on whether the company’s ESG rating is disclosed in the cur Big4 If the company hires the Big 4 accounting firms, the value is 1;
rent period. Further, it takes the value of 1 for the current and subse otherwise, it is 0
Board The natural logarithm of the number of directors on the board
quent periods if the ESG rating was announced in year t for the listed
Supervisor The natural logarithm of the number of directors on the supervisory
company i; otherwise, it takes the value of 0. board
Control variables: Consistent with previous studies, the corporate Firm FE The firm fixed effects
characteristic factors that may impact green innovation should be Year FE The year fixed effects
controlled. The following control variables are included in Equation (1):
return on assets (Roa), asset-liability ratio (Lev), enterprise age (Age),
cash holding (Cash), enterprise size (Size), property rights (Gov), equity
The subscript t represents time, and i represents enterprise. This
concentration (Holder), institutional shareholding ratio (Inst), whether
study focuses on the coefficient α1, which reflects the impact of ESG
it is a big four international accounting firm (Big4), board size (Board),
ratings on corporate green innovation.
and supervisory board size (Supervisor). This study also controls the
The difference-in-differences (DID) regression approach requires
regression’s firm fixed effects (Firm FE) and year fixed effects (Year FE).
that the sample selection in the experimental and control groups is
The definition of all variables are shown in Table 1.
random. The ESG-rated companies are not random because the sample
of companies’ features varies, and there would be interference from a
3.3. Empirical model possible degree of sample self-selection bias if the full sample were used
for analysis. To further ensure the robustness of the benchmark regres
To solve the endogenous problem between ESG rating and corporate sion empirical, the Propensity Score Matching (PSM) method is applied
green innovation: this study uses the time-varying propensity score to the model to address the endogeneity problem caused by self-
matching combined with the difference-in-differences (PSM-DID) selection bias; if the regression result is the same as the full sample
regression approach. It builds the following estimation model (1) [56]: result, the empirical result is shown to be highly robust. First, Logit
/
GINUMi,t+1 GICITi,t+1 = α0 + α1 ESGi,t + α2 Controls + μ1 Year FE + μ2 Firm FE + εi,t (1)
4
regression was performed on the experimental and control groups, with The rating is divided into nine levels, from best to worst: A+, A, A-, B+,
the control variable as the matching variable, using the caliper range of B, B-, C+, C, and C-. These ratings are converted into a score of 9 to 1,
0.01, and the nearest neighbor non-replacement 1:1 matching method to with higher values representing better ESG performance.
find the control group that matches the experimental group. After PSM,
there is no significant difference in the mean of the covariates between 4. Empirical results
the experimental and the control groups in the paired sample. Second,
the DID model of formula (1) was executed again according to the PSM 4.1. Descriptive statistics analysis
samples.
Further, ESG rating scores are critical to corporate investment de Table 2, Panel A reports the distribution of each sample across in
cisions [57]; consequently, another important condition for the impact dustries, covering 15 industry categories, providing a comprehensive
of ESG-rated events on corporate green innovation is the ESG rating measure of the overall situation of listed companies in China. Among
score. This study has incorporated the specific ESG scores of SynTao them, the manufacturing industry accounts for 57.06%. Compared with
Green Finance to measure the ESG performance of listed companies and other types of companies, green innovation is more likely to come from
provide stakeholders with more useful information to confirm that ESG the manufacturing industry. The descriptive statistics of the main vari
ratings can contribute to the effect of corporate green innovation. This ables are shown in Panel B. The average value of green innovation
study uses the OLS regression approach and builds the following esti quantity (GINUM) and green innovation quality (GICIT) among the PSM
mation model (2): sample companies are respectively 0.2158 and 0.9256, all minimum
/
GINUMi,t+1 GICITi,t+1 = α0 + α1 ESG Scorei,t + α2 Controls + μ1 Year FE + μ2 Firm FE + εi,t (2)
values are 0, and the maximum values are 6.0450 and 7.4782, indicating
significant differences in green innovation among different companies
ESG_Score is the ESG score of the SynTao Green Finance Agency with a trend towards polarization and showing a general lack of green
evaluation system. It comprises three primary indicators, 13 secondary innovation in listed companies. The mean value of ESG is 0.1443,
indicators, and over 200 tertiary indicators, containing comprehensive indicating that 14.43% of the samples have obtained ESG ratings, and
and relevant information from the independent disclosure of listed the mean value of ESG_Score is 2.9484, which means that the average
companies, regulatory authorities, media, and social organizations [58]. level of ESG scores is between the B and C levels. Moreover, comparing
Table 2
Panel A. Sample distribution; Panel B. Descriptive statistics.
Panel A.
Code Industry Sample Size Percentage
A Agriculture, forestry, animal husbandry, fishery industries 85 0.99

B Mining industry 346 4.01
C Manufacturing industry 4924 57.06
D Power, thermal, gas and water production and supply industries 376 4.36
E Civil engineering and construction industries 233 2.70
F Wholesale and retail industries 513 5.94
G Transportation, warehousing, and postal industries 395 4.58
I Information transmission, software, and information technology services industries 637 7.38
K Realty industry 580 6.72
L Leasing and business services industries 153 1.77
M Scientific research and technology services industries 32 0.37
N Water conservancy, environmental, and public facilities management industries 96 1.11
O Residential services, repair, and other services industries 30 0.35
R Culture, sports, and entertainment industries 171 1.98
S Public administration, social security, and social organizations 59 0.68
Total 8630 100
Panel B.
Variable N mean min p25 p50 p75 max sd
GINUM 8630 0.2158 0.0000 0.0000 0.0000 0.0000 6.0450 0.6239

GICIT 8630 0.9256 0.0000 0.0000 0.0000 1.7918 7.4782 1.4235
ESG 8630 0.1443 0.0000 0.0000 0.0000 0.0000 1.0000 0.3514
ESG_Score 1395 2.9484 1.0000 2.0000 3.0000 3.0000 6.0000 0.9202
Roa 8630 0.0483 − 0.2197 0.0184 0.0417 0.0757 0.1869 0.0539
Lev 8630 0.4626 0.0530 0.3009 0.4679 0.6224 0.9010 0.2070
Age 8630 12.2696 2.0000 6.0000 12.0000 18.0000 25.0000 6.6463
Cash 8630 0.0502 − 0.1719 0.0098 0.0479 0.0917 0.2344 0.0705
Size 8630 22.8489 19.7899 22.0105 22.8054 23.6599 26.0740 1.2174
Gov 8630 0.4581 0.0000 0.0000 0.0000 1.0000 1.0000 0.4983
Holder 8630 0.3733 0.0850 0.2445 0.3619 0.4884 0.7482 0.1572
Inst 8630 0.3294 0.0000 0.0993 0.2584 0.5538 0.8717 0.2587
Big4 8630 0.0925 0.0000 0.0000 0.0000 0.0000 1.0000 0.2897
Board 8630 2.3330 0.0000 2.1972 2.3026 2.4849 3.2958 0.2729
Supervisor 8630 1.6617 1.0986 1.3863 1.6094 1.7918 2.8332 0.3173
5
Table 3
Regression analysis results.
Variable Full sample DID PSM-DID OLS
GINUM GICIT GINUM GICIT GINUM GICIT
(1) (2) (3) (4) (5) (6)
ESG 0.1215*** 0.0561** 0.0645*** 0.0935**

(5.7517) (2.0017) (2.7731) (2.3231)
ESG_Score 0.0684** 0.1346**
(1.9677) (2.0197)
Roa − 0.0413 − 0.0414 − 0.1186 0.2441 0.7252 1.4282
(-0.6590) (-0.2785) (-0.7144) (0.7675) (0.9295) (1.0110)
Lev 0.0425 − 0.0443 0.0604 0.1205 0.1313 − 0.1832
(1.1252) (-0.6764) (0.5947) (0.8909) (0.2597) (-0.2324)
Age 0.0150 − 0.0348 0.0105 − 0.0171 − 0.0673 − 0.0321
(0.6962) (-0.8310) (0.2441) (-0.2391) (-0.5826) (-0.1645)
Cash 0.0260 0.0524 − 0.0170 0.0978 0.2786 0.7984
(0.7161) (0.5039) (-0.2058) (0.4713) (0.6493) (0.8918)
Size 0.0337*** 0.3042*** 0.0215 0.3098*** 0.0469 − 0.0030
(3.1616) (18.8061) (1.0463) (10.8269) (0.2601) (-0.0109)
Gov 0.0069 0.1135** 0.0362 0.3371*** − 0.2849* − 0.0649
(0.1718) (2.1074) (0.3711) (3.3067) (-1.7634) (-0.1441)
Holder 0.1050 − 0.4098*** 0.2673** − 0.3105* − 0.2621 − 1.4460
(1.4426) (-3.9267) (2.0402) (-1.7912) (-0.3880) (-1.2691)
Inst 0.0439* − 0.0388 0.0516 − 0.1186 − 0.0950 − 0.4112
(1.8410) (-0.9354) (1.2441) (-1.6259) (-0.6861) (-1.5311)
Big4 − 0.1444*** − 0.0902 − 0.1992*** − 0.1178 0.1262 0.5779*
(-3.2374) (-1.3713) (-3.5586) (-1.2379) (1.0306) (1.8459)
Board − 0.0229* − 0.0322 − 0.0371 0.0140 − 0.0437 0.0840
(-1.6571) (-0.9794) (-1.2692) (0.2217) (-0.4453) (0.4252)
Supervisor 0.0212 0.0133 0.0343 − 0.0312 0.1340 0.0077
(1.5076) (0.4350) (1.0851) (-0.5173) (1.3673) (0.0412)
Constant − 0.8073*** − 5.6550*** − 0.5952 − 6.1810*** − 0.0131 1.9478
(-2.8536) (-12.8666) (-0.9836) (-7.4701) (-0.0030) (0.2879)
Year/Firm FE Yes Yes Yes Yes Yes Yes
Adjust_R2 0.1388 0.1418 0.1527 0.1571 0.1575 0.1328
Observations 20,267 20,267 8630 8630 1394 1394
Note: The values in parentheses are t-statistics. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.
their standard deviations, the ESG ratings vary considerably from innovation after obtaining ESG ratings, thereby validating hypothesis
company to company. In terms of control variables, the values of Size, H1a.
Age, and Lev align with the reality of listed companies and are consistent
with the existing literature’s statistical results.
4.3. Mechanism analysis
4.2. Analysis of the regression results We refer to the previous theoretical research to verify whether ESG
ratings further promote the quantity and quality of corporate green
The regression results for the ESG rating and corporate green inno innovation through two mechanisms: mitigating financial constraints
vation are shown in Table 3. Columns (1) and (2) are regressed on for and enhancing managers’ environmental protection awareness. On the
mula (1) with the full sample, and the results show that the regression one hand, after the company’s ESG rating is announced, the company
coefficients of ESG ratings on corporate green innovation quantity and delivers a positive message to the market, gains the favor of investors
quality are both positive and significant at the 1% and 5% levels (α1 = and financial institutions, raises the level of bank recognition of
0.1215, t = 5.7517; α1 = 0.0561, t = 2.0017). Columns (3) and (4) are corporate green innovation, and provides necessary financial support for
listed as matched samples retained by the PSM method and execute the corporate green innovation. This study will verify how ESG ratings
DID model of formula (1). The results also show that the regression of alleviate financial constraints and affect corporate green innovation. On
ESG ratings on the quantity and quality of corporate green innovation is the other hand, its attention to corporate ESG ratings makes external
significantly positive at the 1% and 5% levels (α1 = 0.0645, t = 2.7731; supervision more stringent. Due to market pressure and environmental
α1 = 0.0935, t = 2.3231). They show that after the ESG rating, corporate threats, the company’s management can actively or be compelled to
green innovation is significantly improved. These results can be inter realize the importance of environmental issues, implement positive
preted as a sign that ESG-rated companies are associated with a 6.45% environmental response behaviors by focusing on new green environ
increase in the number of green patent applications and a 9.35% in mental protection technologies and energy-efficient products, and then
crease in the number of green patent citations. Moreover, they can mean explore sustainable development through green transformation. This
that the positive promotion effects are statistically and economically study will validate the path for improving corporate green innovation
significant. Columns (5) and (6) are regressions of formula (2) with a caused by managers’ enhanced environmental awareness after the ESG
sample of companies that have obtained an ESG rating. The results show rating. This study draws on the mediation effect model of Baron and
that the regression coefficients of the ESG rating scores on the quality Kenny [59], combined with formula (1), which constructs the following
and quantity of corporate green innovation are positive and significant formulas (3) and (4) for analysis.
at the 5% level. This further proves the effectiveness of ESG ratings: /
FCi,t MEPAi,t = β0 + β1 ESGi,t + β2 Controlsi,t + μ1 Year + μ2 Firm + εi,t (3)
better-performing companies are more willing to increase the quantity
of green innovation they undertake and improve the quality of such
6
/ /
GINUMi,t+1 GICITi,t+1 = γ 0 + γ1 ESGi,t + γ2 FCi,t MEPAi,t + γ3 Controlsi,t + μ1 Year + μ2 Firm + εi,t (4)
promote corporate green innovation. This study used the Sobel test [64]
First, as verified from the perspective of financing constraints and based to obtain the Z value are − 3.583 and − 3.592, P < 0.01. The results
on the existing literature, the SA index method constructed by Hadlock and indicate that the partial mediation effect of alleviating financial con
Pierce [60] is used for reference to avoid endogenous interference. The use straints exists, and hypothesis H1b is verified.
of company size (Size) and company age (Age) to construct indicators with
exogenous variables has also been widely recognized in academia at home 4.3.2. ESG rating, executive environmental protection awareness, and
and abroad. The financing constraint (FC) is calculated as follows: SA = − corporate green innovation
0.737 × Size + 0.043 × Size2 − 0.04 × Age. Second, analyzed from the Executive environmental protection awareness is a concrete mani
perspective of corporate executives’ environmental awareness. According festation of the executive’s cognition, which determines how the com
to the Whorf-Sapir hypothesis [61], individuals’ embedded words when pany adopts environmentally responsive behaviors. The attention of
participating in social activities can represent their cognition, and external media, investors and analysts brought by ESG ratings will
frequently used words can reflect their inner thoughts. Based on this, text arouse the attention of executives, forcing corporate executives to
analysis can measure managers’ environmental awareness [62]. implement responsive green innovations for social reputation and social
Combining relevant regulations and corporate social responsibility reports: responsibility to reduce the adverse impact of corporate behavior on the
this study uses Python to select some keywords about environmental to environment. Moreover, the “negative list” of ESG ratings will prompt
reflect the managers’ emphasis on energy conservation and environmental executives to be aware of the potential environmental risks associated
protection, such as “energy-saving and emission reduction,” “environ with corporate actions, and then purposefully increase their investment
mental protection strategy,” “environmental concept,” “environmental in green technology innovations such as pollution reduction and ter
management agency,” “environmental protection education,” “environ minal treatment of production materials. It can be seen from Table 4 that
mental protection training,” “environmental technology development,” columns (4), (5), and (6) are the regression results of the mediating ef
“environmental auditing,” and other words. The frequency of these terms fect of executives’ environmental protection awareness on the quantity
in the corporate social responsibility report is calculated to determine the and quality of green innovation. Additionally, the coefficient of column
awareness of corporate executives regarding energy conservation and (4) executive environmental protection awareness (MEPA) is signifi
environmental protection [63]. cantly positively correlated (β1 = 0.0021,t = 1.7853), and the co
efficients of ESG and MEPA in column (5) (γ1 = 0.0655,t = 3.6127; γ2 =
4.3.1. ESG rating, financing constraints, and corporate green innovation − 0.4774,t = − 2.4543) and in column (6) (γ1 = 0.0920,t = 2.285; γ2 =
Financial support plays an essential role in promoting corporate 0.7336,t = 1.6976) are both significant, indicating that the impact of
green technological innovation with the ESG rating. Companies strive ESG rating announcements on corporate green innovation is partly
for excellent ESG ratings, which significantly attract outside attention achieved by raising the environmental awareness of executives. Further
and investment in financial institutions. Financial institutions formulate tested by Sobel, the Z value are 3.498 and 3.499, P < 0.01, and the re
related credit policies, prioritize companies with excellent ESG ratings, sults show that the mediating effect of executive environmental
grant preferential loan support, and actively guide the inflow of capital awareness is significant, and hypothesis H1c is verified.
and technology to form a resource agglomeration to promote corporate
green innovation more effectively. The results in Table 4 show that 4.4. Robustness checks
columns (1), (2), and (3) are the regression results of the mediation ef
fect of financial constraints on the quantity and quality of green inno 4.4.1. Parallel trend hypothesis test
vation. Column (1) shows a significant negative correlation with the To further illustrate the rationality of the above results, this study
coefficient of financing constraint (FC) (β1 = − 0.0101, t = − 8.2799), conducts a parallel trend test. Table 5 lists the dynamic effects of ESG
and the coefficients of both ESG and FC on the quantity of green inno ratings on corporate green innovation. There is no significant impact of
vation in column (2) (γ1 = 0.0425, t = 2.3257; γ2 = − 2.1815, t = ESG rating on the quantity and quality of corporate green innovation
− 7.5519) and the quality of green innovation in column (3) (γ1 = before the ESG rating event was announced, whereas there is a signifi
0.0749, t = 1.8379; γ2 = − 1.8488, t = − 2.8707) are significant, indi cant positive impact after the ESG rating. Drawing on the time-varying
cating that ESG ratings can significantly alleviate financial constraints to dynamic effects model [65], we add the impact of ESG dummy
Table 4
Test of the mediation effects.
Variables FC GINUM GICIT MEPA GINUM GICIT
(1) (2) (3) (4) (5) (6)
ESG − 0.0101*** 0.0425** 0.0749* 0.0021* 0.0655*** 0.0920**

(-8.2799) (2.3257) (1.8379) (1.7853) (3.6127) (2.2852)
FC − 2.1815*** − 1.8488***
(-7.5519) (-2.8707)
MEPA − 0.4774** 0.7336*
(-2.4543) (1.6976)
Constant 1.2734*** 2.1827*** − 3.8267*** − 0.1768*** − 0.6813* − 6.0487***
(29.1193) (4.1784) (-3.2857) (-7.4676) (-1.8214) (-7.2791)
Control Variables Yes Yes Yes Yes Yes Yes
Adjust_R2 0.6272 0.1610 0.1583 0.2054 0.1536 0.1575
Observations 8630 8630 8630 8630 8630 8630
7
Fig. 2. Parallel trend test coefficient diagram.
variables before and after ESG rating on the quantity and quality of implementation and demonstrate that the benchmark regression results
corporate green innovation in the benchmark regression to observe the are robust.
time trend of the average treatment effect. Among them, Beforei repre
sents the five years before the ESG rating is implemented, Current rep 4.4.2. Change PSM method
resents the year when the ESG rating is implemented, and Afteri is three The PSM method is further adapted to eliminate the differential
years after the ESG rating is implemented. The results in Table 5 (1) and impact of different policies on corporate green innovation in different
(2) show that the ESG rating coefficients are not significant in the first industries and effectively remove the inherent differences between the
four years; that is, the improvement of corporate green innovation was experimental and control groups on the conclusions. We increase the
not significant before the ESG rating was implemented, whereas the control of the same industry and time to propensity score matching
regression coefficients of Current and Afteri were both significantly again, obtain the propensity score of each observation through Logit
positive for the quantity and quality of green innovation. The dynamic regression, and use the non-replacement 1:1 nearest neighbor matching
effect trend chart is shown in Fig. 2 (a) and (b) below corresponds to method to match the samples. The re-matched samples are selected for
columns (1) and (2) of Table 5, respectively, representing a gradual and regression, and the results obtained are shown in columns (3) and (4) of
significant improvement in the quantity and quality of corporate green Table 5. It can be seen from the results that even if the matching method
innovation in the current and subsequent years after ESG rating is changed, the ESG coefficient is still significantly positive, which passes
Table 5
Results of robustness checks.
Variables Parallel trend Change PSM Measure replacement Placebo test
GINUM GICIT GINUM GICIT GINUM1 GICIT1 GINUM GICIT
(1) (2) (3) (4) (5) (6) (7) (8)
Before4 − 0.0274 0.0609

(-0.9223) (0.9662)
Before3 − 0.0055 0.0368
(-0.1726) (0.5500)
Before2 0.0335 0.0952
(0.9377) (1.2531)
Before1 0.0461 0.0835
(1.1565) (1.0354)
Current 0.0777* 0.1862**
(1.8964) (2.2448)
After1 0.1023** 0.1871*
(2.0019) (1.7339)
After2 0.1564** 0.2994***
(2.4917) (2.6135)
After3 0.1660** 0.2576**
(2.3811) (2.0548)
ESG 0.0890*** 0.1619*** 0.0783*** 0.0104**
(3.9319) (2.8282) (2.7138) (2.0504)
ESG-placebo 0.0378 0.0588
(1.3172) (1.0204)
Constant − 0.4729 − 6.1317*** − 0.4081 − 5.1182*** − 0.7853 − 0.3865*** − 0.6463 − 6.2525***
(-0.7679) (-5.5749) (-0.7493) (-5.6328) (-1.1749) (-3.7156) (-1.0564) (-5.7204)
Control Variables Yes Yes Yes Yes Yes Yes Yes Yes
Year/Firm FE Yes Yes Yes Yes Yes Yes Yes Yes
Adjust_R2 0.1541 0.1551 0.1578 0.1549 0.1665 0.1075 0.0510 0.0564
Observations 8630 8630 9757 9757 8630 8630 8630 8630
8
the robustness test. Once again, this proves our point that the ESG rating Table 6
event promotes the quantity and quality of corporate green innovation. Heterogeneity analysis results.
Variable ER Market
4.4.3. Measure replacement
GINUM GICIT GINUM GICIT
It is necessary to test whether the results of the benchmark regression
will have different results owing to the definition of the dependent (1) (2) (3) (4)
variable. This study refers to the method Wang et al. (2021) propose and ESG 0.0324 0.0029 0.0912*** 0.0658
uses the ratio of the number of citations of quality green patent appli (1.3388) (0.0569) (3.1252) (1.5542)
ER 0.0343 − 0.1338*
cations to that in the industries to which the enterprises belong to reflect
(0.9398) (-1.7339)
the quantity of green innovation [66]. This study also refers to Pan et al. ESG*ER 0.0524** 0.1702***
(2021) by utilizing the number of green patents granted to reflect the (2.1257) (3.2633)
quantity of green innovation [67]. We re-examine the relationship be Market 0.4103* 0.2546
tween ESG ratings and the quantity and quality of corporate green (1.7829) (0.6077)
ESG*Market 0.2440** 0.6604***
innovation, and the regression results are listed in columns (5) and (6) of (2.0606) (2.8210)
Table 5. It can be seen from the results that the ESG coefficient is Constant − 0.5916* − 6.3099*** − 0.3710 − 4.3107***
significantly positive, indicating that the benchmark regression results (-1.7666) (-8.9069) (-0.5933) (-6.0603)
have not fundamentally changed even if the dependent variable is Control Variables Yes Yes Yes Yes
Year/Firm FE Yes Yes Yes Yes
changed, supporting hypothesis H1a.
Adjust_R2 0.1528 0.1578 0.1532 0.1588
Observations 8630 8630 8630 8630
4.4.4. Placebo test
Note: The values in parentheses are t-statistics. ***, **, and * denote significance
To verify that the empirical results of this study are caused by ESG
at the 1%, 5%, and 10% levels, respectively.
rating as opposed to other factors, the placebo test method is used to
change the timing of ESG rating implementation artificially, thus
rendering the regression results of PSM-DID non-significant. For this the context of strict external government environmental regulations
reason, this study keeps the ESG-rated companies unchanged, but the [72]. In terms of the actual effect, stringent environmental regulations
implementation time of the ESG rating is moved back to 2017. If the have shown promising results in boosting green innovation. Therefore, a
previous conclusion is mainly due to the ESG rating, then the placebo combination of stricter environmental regulations is supplemented by
test cannot obtain a consistent and significant conclusion with the pre an effective ESG rating mechanism, which can encourage local com
vious section. The regression results are presented in columns (7) and (8) panies to be more proactive in their pursuit of green innovation.
of Table 5, showing that the ESG placebo is insignificant. It proves that Concerning the selection of environmental regulation indicators,
the implementation of SynTao’s Green Finance ESG rating event in 2015 domestic and foreign representative measurement indicators include the
improves corporate green innovation. number of environmental regulation-related policies implemented, per
capita income, and the proportion of total investment in pollution
control in gross industrial output. It should be noted that the above in
5. Further research
dicators only reflect a limited aspect of environmental regulation and
are prone to bias in the final estimation results. Therefore, this study
5.1. Heterogeneity analysis
opts for the comprehensive index method, considering the availability of
relevant pollutant emission data in China [73], to select five individual
Although the benchmark regression results provide a wealth of
indicators: the comprehensive utilization rate of industrial solid waste,
empirical evidence to support the use of ESG ratings to improve
industrial smoke and dust removal rate, sulfur dioxide removal rate,
corporate green innovation, the impact of ESG ratings on corporate
industrial wastewater discharge compliance rate, and industrial dust
green innovation may also depend on factors such as the intensity of
removal rate. To render the selection of the weights for each indicator
environmental regulations and market competition in the area in which
more objective, referring to Li and Du’s improved entropy method to
the company is located [68]. According to the institutional theory,
derive the strength of environmental regulations in various provinces
governments and markets are critical institutional factors for developing
can better represent the overall environmental regulation (ER) situation
countries with transition economies [69]. On this basis, the present
[74]. This study adds the ER variable and the cross term of ESG and ER
study further explores the effectiveness of ESG ratings on corporate
to the benchmark regression formula (1). From the analysis results, it
green innovation across heterogeneous environmental regulation in
can be seen that in columns (1) and (2) of Table 6, the regression co
tensity and market competition to offer more convincing empirical
efficients of the cross items are 0.0524 and 0.1702, which are signifi
results.
cantly positive at both the 5% and 1% confidence levels. These figures
indicate that when companies are subject to stricter environmental
5.1.1. Environmental regulations heterogeneity analysis
regulations, the positive effect of ESG ratings on the quantity and quality
The effectiveness of ESG ratings requires the support of associated
of corporate green innovation is more significant.
environmental protection policies and related laws and regulations.
Those regions with stricter environmental supervision can increase the
5.1.2. Market competition heterogeneity analysis
willingness of companies to conduct R&D through the pressure created
With the deepening of green transformation at the market level,
by environmental regulations [70]. However, simultaneously, the
companies need to remain abreast of changes in the industry and pro
higher prices of input factors and the increased cost of environmental
actively disclose the value of their green investments. Although peers in
pollution control brought about by environmental regulations may
the market set the same sustainable development goals and have built
crowd out investment in corporate R&D. Moreover, ESG ratings send out
interest-related relationships, competition among them has become
positive signals to external stakeholders that can help ESG-rated com
increasingly intense [68]. Healthy competition is conducive to the green
panies obtain environmental qualification certifications, increase gov
transformation of enterprises through green innovation [75]. Based on
ernment satisfaction, and obtain or enhance “legitimacy” status [71].
the signaling theory, intense market competition feeds into antagonistic
The publication of ESG ratings can effectively alleviate information
relationships between companies and increases the pressure generated
asymmetries between the environmental supervision department and
by ESG ratings [76]. The fiercer market competition, the more eager
the company, and enhance the corporate green goodwill and market
competitors are to demonstrate their superiority through various means.
value to obtain adequate financial support for green innovation, even in
9
When an ESG rating is given, this creates a favorable opportunity for constraints [81]. This study uses the comprehensive scores of sales
excellent-rated companies to stimulate their development and gover revenue growth rate, retained earnings rate, capital expenditure rate,
nance motivation while giving them more time to carry out ecological and corporate age to determine the company’s life cycle stage. Based on
transformation. Companies seek to leverage and expand their existing the fact that Chinese listed companies have moved past the start-up
advantages and pursue forms of green innovation that reduce environ period and considering the differences between industries, a com
mental pollution or improve resource utilization to achieve fundamental pany’s life cycle can be divided into three periods: growth, maturity, and
transformation. ESG ratings can withstand the long-term environmental decline. As shown in Table 7, the regression results show that ESG rat
impacts and business risks brought about by intense competition [77], ings have a significant positive impact on corporate green innovation at
and there will be tremendous potential for improving corporate green the 5% level for companies in the growth stage (α1 = 0.0977, t = 2.1841;
innovation. Therefore, in the context of a progressively competitive α1 = 0.1567, t = 2.4222), whereas the effect of ESG ratings is not sig
market, the positive development trend signal transmitted by ESG rat nificant for either the mature or declining periods in columns (3) to (6).
ings will further promote corporate green innovation. This indicates that the publication of an ESG rating is more effective in
Market concentration reflects the degree of market competition to a promoting access to greater information and capital for enterprises in
certain extent [78]. Market concentration is the degree of agglomeration the growth period, thus alleviating corporate financial constraints,
of input or output factors among companies within a competitive market raising managers’ environmental awareness, and ultimately enhancing
[79]. It can be taken as a basic indicator to measure the degree of corporate green innovation.
competition among companies, with low market concentration indi
cating fierce competition. Following previous research, this study uses 6. Conclusion and enlightenment
the opposite number of market concentrations to measure market
competition (Market). This study also incorporates the variable Market 6.1. Conclusion
and the cross term of ESG and Market into the benchmark regression
formula (1). The results are shown in columns (3) and (4) of Table 6. The Under the guidance of the United Nations and other organizations,
regression coefficients of the cross items are 0.2440 and 0.6604, which ESG concepts are proliferating and developing rapidly on a global scale.
are significantly positive at both the 5% and 1% confidence levels. These The implementation of ESG ratings helps promote the transition from
results indicate that the fiercer market competition is, the more signif “profit-oriented” to “sustainable development” in companies’ business
icant the positive impact of ESG ratings on the quantity and quality of processes and is an important measure to improve the environment and
corporate green innovation will be. achieve green development. However, the validity of ESG ratings re
mains controversial in existing studies, with most studies focusing on the
impact of ESG ratings in developed countries. However, there is a lack of
5.2. Life cycle heterogeneity research exploring the role of ESG ratings and their relationship with
corporate green innovation in developing countries. Therefore, this
It is currently the case that the “black box” surrounding the effects of study contributes to the existing literature on sustainable development
ESG ratings in China needs to be further opened. After considering the and positive corporate environmental investment behavior. Moreover, it
effect of differences in the regional heterogeneity of government envi provides further theoretical and empirical support for the previous study
ronmental regulation and market competition, this study examines on the effectiveness of ESG ratings and unifies China’s ESG rating system
corporate heterogeneity in the temporal dimension. The evolution of a and green innovation into a single framework that proposes ways in
company’s life cycle varies at different times. The life cycle theory posits which ESG ratings can boost corporate green innovation through the use
that the levels of financial constraints, managerial behavior awareness, of internal and external resources (financial constraints and managers’
investment and financing strategies, and innovation willingness of environmental awareness).
companies during different development periods are significantly This study takes the ESG rating event as an entry point and selects
different [80]. Accordingly, after companies comprehensively assess 2010–2018 data on A-share listed companies in the Shanghai and
their resource endowments, development needs, and external environ Shenzhen Stock Exchanges as the study dataset. The empirical results
ment, corporate green innovation requires prudent decision-making. It show that the ESG-rated companies disclosed by the SynTao Green
is reasonable to expect that the incentive effects of ESG ratings on Finance Agency since 2015 are more active in terms of green innovation
corporate green innovation will vary depending on the stage of the life quantity and quality; notably, the better the ESG performance, the more
cycle that the company is in at a given time. The paths and costs of active the company is in terms of green innovation. Subsequently, the
accessing information and finance vary for companies in different life empirical results remain significant and credible when subjected to
cycle stages. Compared with the mature and declining periods, com robust testing, such as parallel trend tests, PSM method changes,
panies in their growth period have incomplete information disclosure, replacement of the dependent variable, and placebo tests. Since ESG
information asymmetry, and higher information costs; moreover, they ratings were announced, ESG-rated companies can promote green
face the dilemma of large capital demands coupled with high financing
Table 7
Regression results of enterprise life cycle heterogeneity.
Variables Period of Growth Period of Mature Period of Decline
GINUM GICIT GINUM GICIT GINUM GICIT
(1) (2) (3) (4) (5) (6)
ESG 0.0977** 0.1567** − 0.0102 0.0658 0.0252 0.0920

(2.1841) (2.4222) (-0.2564) (1.0225) (0.3930) (0.7786)
Constant 0.6654 − 5.5342*** 0.3513 − 5.4410*** 0.2075 − 2.2137
(0.6599) (-4.1077) (0.2324) (-3.3120) (0.1654) (-0.9141)
Control Variables Yes Yes Yes Yes Yes Yes
Adjust_R2 0.0789 0.0987 0.1480 0.0772 0.1464 0.0629
Observations 4169 4169 3131 3131 1325 1325
10
innovation by alleviating financial constraints and raising manage Fourth, the heterogeneity effect of ESG rating implementation from
ment’s environmental awareness, thus providing empirical evidence to the perspective of government, market, and company warrants full
support the information asymmetry theory and the upper echelon the consideration. This study found that ESG ratings play a significant role
ory. Further research finds that ESG-rated companies have a more sig in promoting the quantity and quality of green innovation in companies
nificant positive impact on green innovation in areas with strict that are subject to strong environmental regulations and fierce industry
environmental regulations and fierce market competition and com competition, and are in their growth period. Therefore, to make ESG
panies in the growth period. Conclusively, this finding provides new ratings more effective, government environmental regulations can be
evidence to support ESG ratings as an excellent approach to promoting strengthened in a targeted manner, market competition can be carefully
corporate green innovation and setting a direction for further deepening guided to assist with resource allocation, and ESG concepts can be in
green development. tegrated with green innovation development strategies during the
growth periods of companies, to give full play to the positive impact of
ESG ratings on green innovation and help companies undergo green
6.2. Enlightenments
transformation.
This study focuses on the Chinese market, in which green innovation
is limited. With the introduction of the national sustainable develop 6.3. Limitations and future prospects
ment strategy, regulators are paying closer attention to ESG ratings, and
China, as the largest emerging economy, is playing a leading and This study has some limitations, which will require further research
exemplary role for other similar developing countries in practicing the in the future. First, as there is neither a recognized definition nor a
new development concept of ESG ratings and implementing a national uniform measure of ESG, ratings may have certain subjective charac
green innovation strategy. teristics. It is also important to note that our sample is limited to China.
First, countries worldwide, especially developing countries, need to Although this study has conducted robustness tests wherever possible,
further develop and refine their ESG evaluation systems and actively the empirical results may nevertheless be affected by selection bias.
deepen their ESG development concepts. The empirical results of this Therefore, it is necessary to deploy more advanced econometric tech
study demonstrate that ESG ratings have a significant positive impact on niques to solve this problem in future research and consider the impact
the quantity and quality of green innovation promotion. Therefore, it is of ESG ratings on corporate green innovation extending to other
worth other developing countries learning from China’s success with developing countries. Second, many studies employ the internationally
ESG ratings to expand the influence of ESG ratings among companies accepted ESG rating system; however, some indicators may not be
and integrate ESG with corporate investment decisions. Moreover, applicable to the current stage of development in developing countries.
gradually guiding companies to improve their ESG performance and This study chooses China’s authoritative SynTao Green Finance rating
providing stakeholders with real and valid data support will enable method for the ESG rating. However, we do not obtain separate scores
support from internal and external resources, which is conducive to for the E (environmental), S (social) and G (corporate governance) as
increasing the motivation for corporate green innovation and enhancing pects of ESG for this rating method. This study faces certain challenges in
their sustainable competitiveness to promote the harmonization and evaluating the specific ESG aspects of listed companies and can only look
unification of economic, social, and ecological benefits. at their effect on green innovation from the overall level. Therefore, this
Second, corporate green innovation is inextricably linked to the study is not the final conclusion of the ESG rating for corporate green
support of resources and it is necessary to improve further the sup development behavior. It is necessary to develop an ESG rating system
porting incentives of financial institutions in ESG practice. This study that is more suitable for domestic enterprises in future research and can
finds that ESG ratings send a positive signal, which can help secure provide more detailed scores to verify the results.
financial support from stakeholders and alleviate corporate financing
constraints. This result is of great significance to policymakers and Declaration of competing interest
regulators as it encourages the inclusion of ESG ratings in financial in
stitutions’ lending systems. Under such arrangements, preferential All authors have seen and approved the manuscript. We have no
measures can be provided for companies with good ESG ratings to conflict of interest to disclose. None of the authors has a financial or
reduce financing constraints. Additionally, ESG disclosure can be pro personal relationship with other people or organizations that could
moted as a way to improve the efficiency of capital allocation and reduce inappropriately influence or bias the content of the research and No
companies’ financing costs for them to bolster their environmental competing interests are at stake.
performance during the operation process, and increase the quantity and
quality of green innovation. Acknowledgments
Third, achieving green development requires a shift in manage
ment’s view of ESG and a renewed focus on management incentives. The authors are grateful for the research support from the following
This study focuses on ESG ratings in terms of the transmission mecha foundations: the Key Project of National Social Science Fund of China,
nism to improve executive environmental protection awareness, and it is grant number 21AGL013; and Philosophy Science Foundation of Zhe
also an important factor that management cannot ignore when making jiang Province, grant number 21NDJC077YB.
green innovation decisions. Corporate leadership awareness is the
epitome of corporate strategy. In the context of the gradual development References
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Technology in Society 68 (2022) 101906

Contents lists available at ScienceDirect

1. Introduction effectiveness of ESG ratings, most of which examine the relationship

Fig. 1. Hypothetical framework.

such as green product innovation and process innovation [51]. As it is

Code Industry Sample Size Percentage

A Agriculture, forestry, animal husbandry, fishery industries 85 0.99

Variable N mean min p25 p50 p75 max sd

GINUM 8630 0.2158 0.0000 0.0000 0.0000 0.0000 6.0450 0.6239

GINUM GICIT GINUM GICIT GINUM GICIT

(1) (2) (3) (4) (5) (6)

ESG 0.1215*** 0.0561** 0.0645*** 0.0935**

(1) (2) (3) (4) (5) (6)

ESG − 0.0101*** 0.0425** 0.0749* 0.0021* 0.0655*** 0.0920**

Fig. 2. Parallel trend test coefficient diagram.

GINUM GICIT GINUM GICIT GINUM1 GICIT1 GINUM GICIT

(1) (2) (3) (4) (5) (6) (7) (8)

Before4 − 0.0274 0.0609

GINUM GICIT GINUM GICIT GINUM GICIT

(1) (2) (3) (4) (5) (6)

ESG 0.0977** 0.1567** − 0.0102 0.0658 0.0252 0.0920

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ESG 0.1215* 0.0561 0.0645* 0.0935

ESG − 0.0101* 0.0425 0.0749* 0.0021* 0.0655* 0.0920

ESG 0.0977 0.1567 − 0.0102 0.0658 0.0252 0.0920