Financing the low-carbon transition: Do energy transition investments improve ESG performance?

Energy transition investment ( eti ) has emerged as a central component of global climate finance, yet its firm-level consequences remain insufficiently understood. Using BloombergNEF energy-transition investment data and Refinitiv ESG measures, we examine whether aggregate transition-finance deployment influences corporate sustainability performance. We find that higher eti exposure is associated with significant improvements in environmental, social, and governance ( esg ) performance, with the strongest gains observed in the environmental pillar. The positive association is stronger among firms with greater climate-related innovative capacity and among low-carbon firms, whereas esg gains are comparatively smaller in high-carbon sectors despite the economic importance of eti for managing transition risk. Robustness analyses based on dynamic System Generalized Method of Moments (SGMM) estimation, external instrumental-variable techniques, and Granger-causality tests indicate that eti precedes and predicts subsequent esg improvements. Overall, the findings identify a macro-to-micro transmission mechanism through which large-scale transition-finance deployment shapes firm behavior and sustainability outcomes, establishing eti as an important driver of multidimensional corporate sustainability performance.