Shifting focus from end-of-pipe treatment to source control: ESG ratings' impact on corporate green innovation

This study actively explores the pivotal role of environment, society, and governance (ESG) ratings in optimizing corporate green innovation activities as a robust response to ongoing ESG investment divestment. It provides empirical support for implementing corporate green transitions, establishing, and refining market-driven green development framework, and attaining "carbon peaking, carbon neutrality" targets. Furthermore, the research represents a groundbreaking effort to assess the influence of ESG ratings on corporate green innovation with a specific focus on pollution disposal. Specifically, examining data from Chinese A-share listed companies spanning 2011 to 2020, this study utilizes various models, including multi-period difference-in-differences (DID), event study, staggered DID, and synthetic DID (SDID). The ensuing analysis reveals that ESG ratings significantly impact the development of corporate green innovation, catalyzing the transformation of green innovation activities from end-of-pipe to source control. Notably, ESG ratings achieve this transformation by mitigating managerial myopia, enhancing the research and development (R&D) staff ratio, and alleviating financial constraints. However, the study also identifies institutional constraints and corporate digitalization as factors leading to heterogeneous effects on green innovation and its direction. These findings not only provide enhanced theoretical support but also offer empirical validation for corporations and governments looking to implement and generalize ESG ratings, facilitating a successful green transition.

Firm-level carbon risk perception and ESG performance

In a sustainable economy, each firm perceives different levels of carbon risk, but there are few studies on the relationship between a firm's carbon risk perception and Environmental, Social, and Governance (ESG) performance. This paper examines the impact of firm-level carbon risk perception on ESG performance using Chinese A-share listed firms during 2011-2020. We find a positive relationship between firm-level perception of carbon risk and firm ESG performance. Further analysis shows that analyst coverage and media attention exert a substantial moderating effect on the link between carbon risk perception and ESG performance. We identify three channels through which carbon risk perception affects ESG performance. First, rising carbon risk perception enables firms to take measures to reduce pollutants and greenhouse gas emissions and increases environmental (E) scores. Second, this perception encourages firms to take responsibility for social employment and increases social (S) scores. Finally, it improves firm sustainable governance and further increases governance (G) scores. Our research has an important guiding role in promoting firm ESG practice.

Does environmental information disclosure affect corporate cash flow? An analysis by taking media attentions into consideration

Continued conflict flare-up and lingering supply bottlenecks in recent years highlight the importance of corporate risk management. Based on stakeholder theory and legitimacy theory, this study investigates whether Environmental, Social, and Governance (ESG) disclosure, as well as its three pillars, helps hedge against the cash flow risk. Using the data of A-share listed firms in China over the period 2011-2021, our results show that ESG disclosure serves to tame the fluctuations in cash flow, especially in the long run. A one-point increase in the ESG disclosure score lowers the volatility of 1-year and 5-year cash flow rate by 0.014 and 0.020, respectively. In addition, we find that media attention, as an essential intermediary and external supervisor, strongly reverses the positive effect of environmental information disclosure on cash flow risk, while such an effect disappears for social and governance pillars. Further analysis indicates the weak performance of ESG disclosure for SOEs and SMEs.