How government-run funds guide corporate ESG: evidence from social security fund holdings in China

This paper investigates how government-run funds guide environmental, social, and governance (ESG) engagement. Using a comprehensive dataset of fund holdings in 4,251 Chinese listed firms from 2009 to 2020, we find that firms significantly improve ESG performance after entering social security fund portfolios. Mechanism analyses indicate that social security funds guide firms to incorporate ESG factors in corporate decisions by enhancing reputation risk management awareness and long-term funding accessibility. Furthermore, the positive effect on corporate ESG performance is more pronounced in cases of non-SOE portfolio firms and more active social security fund investments. The relationship is robust after addressing endogeneity issues with PSM and stacked DID methods. Our findings demonstrate another driving force of ESG and a guiding role of government-run funds in promoting sustainability.