Cross-national institutional divergence in ESG ratings and corporate green innovation

With the acceleration of green transformation, the philosophy of environmental, social, and governance (ESG) is gradually making its way into the operation and management of enterprises. However, cross-national institutional divergence in ESG ratings often produces different rating results for the same enterprise, which may have substantial effects on enterprises' green innovation strategies. Therefore, we use listed companies in China from 2015 to 2023 as the sample to study the impact of cross-national institutional divergence in ESG ratings on green innovation strategies. The results indicate that, compared with substantive green innovation, ESG rating divergence promotes strategic green innovation. Mechanism analysis reveals that ESG rating divergence induces enterprises to engage in strategic green innovation by reducing institutional investor holdings and exacerbating corporate financing constraints. Further analysis confirms that strategic green innovation is not triggered by ESG rating divergence within a single institutional system and that patent protection strength functions as an effective institutional constraint that discourages enterprises from engaging in strategic green innovation merely to respond to ESG rating divergence. Heterogeneity analysis reveals that in state-owned enterprises and those with high levels of corporate governance, ESG rating divergence promotes substantive green innovation. Overall, we provide empirical evidence for improving the construction of China's ESG rating system and help promote the development of corporate green innovation.