The effect of ESG rating events on corporate green innovation in China: The mediating role of financial constraints and managers' environmental awareness

The effectiveness of environmental, social, and corporate governance (ESG) ratings has been widely discussed and is often linked to corporate financial performance by academics and practitioners. However, a significant research gap remains unexplored, specifically, measuring the underlying mechanisms between ESG ratings and corporate green innovation in developing countries. This study unpacks the quasi-natural experiment based on the 2015 ESG rating of the SynTao Green Finance Agency to investigate how ESG ratings affect corporate green innovation based on data relating to Chinese A-share listed companies between 2010 and 2018. The results show that ESG ratings significantly promote the quantity and quality of corporate green innovation and are mediated by alleviating financial constraints and increasing managers' environmental awareness. In this context, the higher the ESG rating score, the more apparent is the promotion effect. Furthermore, stricter environmental regulations, increased market competition, and companies in their growth period strengthen the association between ESG ratings and green innovation. This study provides scientific evidence for the role of ESG ratings in promoting proactive green innovation and deepening green development in China.