Using panel data on A-share listed firms from 2013 to 2023, this study examines the causal effect of environmental, social, and governance (ESG) performance on corporate leverage. The results show that stronger ESG performance significantly reduces firm leverage through enhanced internal financing capacity and lower information asymmetry. These findings remain robust to alternative measures and multiple endogeneity tests. Further analyses indicate that the leverage-reducing effect is stronger when ESG rating divergence and investment inefficiency are lower and when patient capital ownership is higher. This study extends the ESG – corporate finance literature and offers implications for sustainable financing in emerging markets.
Jiang et al. (2026) studied this question.