Corporate ESG performance and low-carbon technology innovation

Low-carbon technology innovation is crucial for achieving carbon peaking and neutrality targets. However, the influence of corporate Environmental, Social, and Governance (ESG) performance on such innovation remains insufficiently studied. This paper examines whether and how ESG performance drives low-carbon technology innovation at the firm level, grounded in stakeholder theory, resource-based view, and signalling theory. Using a unique panel dataset of Chinese listed companies from 2009 to 2021, we construct a firm-level low-carbon innovation indicator based on patent data and apply a two-way fixed effects model to identify causal effects. Our results show that improved ESG performance significantly enhances low-carbon innovation, with a one-unit increase in ESG performance linked to an approximate 4.1% rise in related patent applications. Mechanism analysis identifies that alleviation of financing constraints, strengthening of internal control, increased environmental protection efforts, and higher R&D investment serve as key channels. Additionally, the positive impact of ESG performance is stronger in non-state-owned enterprises, firms receiving greater government subsidies, and those in growth and maturity stages of their lifecycle. This study contributes to the sustainable corporate governance and green innovation literature, providing valuable insights for policymakers, investors, and managers aiming to advance corporate climate contributions through ESG strategies.