Li, H; Gao, X; Zhang, X; Zhai, K; Ling, Y; Cao, M; (2025) The impacts of China’s sustainable financing policy on environmental, social and corporate governance (ESG) performance. Environment, Development and Sustainability 10.1007/s10668-025-06087-6. (In press).

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Abstract

Against the backdrop of global concern sbout sustainable development and environmental, social and corporate governance (ESG) investment, the Chinese government has introduced a series of policies aimed at promoting green finance and sustainable development. These policies have had significant impacts on the financing environment and ESG performance of companies, particularly in heavily polluting industries. Extant literature predominantly focuses on the impacts of ESG disclosure and ESG ratings, while our study aims to examine how China’s sustainable finance policies affect companies’ ESG performance. Using a sample of Chinese A-share listed companies from 2009 to 2022, we employ a difference-in-differences (DID) approach to analyse the effect of the 2012 “Green Credit Guidelines” policy on ESG ratings in heavily polluting industries. Further analyses investigate the moderating roles of firm size and ESG strength, alongside the mediating effect of green technology innovation. The findings reveal that the sustainable finance policy markedly improved the ESG scores of heavy polluters by an average of 0.06 points (on a 6-point scale). Company size moderates the impacts of policy, with a 1% increase in firm size reducing the policy effect by 0.01 points. A strong ESG performance helps mitigate policy-driven increases in financing constraints, with a 1-point increase in ESG strength lowering the constraint by 0.002. In addition, sustainable financing policies indirectly promote good ESG conduct by stimulating green technology innovation, which partially mediates the relationship. This study offers policymakers an efficacious tool with which to incentivise ESG investment, as well as providing guidance companies on how to formulate ESG strategies. With ESG integration gaining momentum globally, policy analyses should inform smart evidence-based reforms across institutional contexts. Further research could investigate cross-country variations and long-run dynamics as sustainable finance and responsible investment continue to mature.

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