How Does New Energy Policy Affect Corporate Sustainability? Evidence from ESG Performance

Amid the global energy transition, whether city-level energy policies can improve firm-level sustainability remains insufficiently understood. Using panel data on Chinese A-share listed firms from 2009 to 2023, this study examines the relationship between China’s New Energy Demonstration City (NEDC) Pilot Policy and corporate environmental, social, and governance (ESG) performance within a difference-in-differences framework. The results show that firms registered in pilot cities experienced greater post-designation improvements in ESG performance than firms in non-pilot cities, and this finding remains robust across a range of identification and sensitivity analyses. Channel analyses provide evidence consistent with green technological innovation and improved external financing conditions as two potential firm-level channels associated with the NEDC–ESG relationship. The estimated relationship is more pronounced among firms with greater analyst coverage, non-state-owned enterprises, and high-tech firms, as well as among firms located in the eastern and central regions and in areas with stronger pre-existing environmental regulation. Dimension-specific analyses yield positive and statistically significant estimates for environmental and governance performance, but not for social performance. Distance-band estimates further suggest localized spillovers to nearby non-pilot firms. These findings extend the evidence on the firm-level consequences of city-level energy-transition policies and highlight the roles of firm characteristics, local institutional conditions, and external information environments in shaping corporate sustainability responses.