Leading Sustainability: The Impact of Executives’ Environmental Background on the Enterprise’s ESG Performance

Abstract

Improving corporate ESG performance is regarded as a useful means to promote low-carbon transformation. Based on executive echelon theory, this study uses textual analysis to identify the executives’ environmental background characteristics and explores the impact on the company’s ESG performance, using data on China’s A-share listed companies from 2009 to 2021. The empirical results show that (1) the environmental background of executives has a positive impact on the enterprise’s ESG performance, and a series of robustness tests reconfirm this finding. (2) The mediating effect model shows that the executives’ environmental background can trigger environmental investment and the green innovation effect, improving the enterprise’s ESG performance. (3) The heterogeneity analysis shows that the impact of the environmental background of executives on the firm’s ESG performance is more sensitive in non-state-owned and heavily polluting enterprises. (4) Improving corporate ESG performance can also promote economic performance and achieve the dual goals of the “environment + economy”. The conclusions in this study provide a theoretical basis and practical enlightenment for the government to formulate environmental policies.

1. Introduction

The Chinese government has incorporated carbon neutral and carbon peak goals into the national “14th Five-Year Plan”, which sets new requirements for the green development of Chinese enterprises. As the main force of environmental governance, how to encourage enterprises to fulfill their social responsibilities has become an urgent practical problem [1,2,3]. In recent years, an enterprise’s environmental, social, and governance (ESG) performance has become a critical measure of corporate sustainability. As stakeholder theory points out, the evaluation of ESG performance indicators breaks through the narrow notion that social responsibility is limited to economic benefits. It suggests that a company’s success depends not only on its financial performance, but also on its protection of the environment and its contribution to society [4,5]. The ESG performance of enterprises is not only an important policy tool to promote low-carbon transformation, but it is also an important way to overcome the dilemma of enterprise green development [1,2,6]. Therefore, improving the ESG performance of enterprises has become a key measure to promote corporate green development.

Although existing studies have pointed out that external environmental supervision has a positive effect on improving enterprises’ ESG performance [7,8,9], too strong external supervision may lead to greenwashing and even more serious environmental pollution [10,11]. In contrast, the willingness of enterprises to take on socio-environmental responsibilities is an internal force that promotes the green development of companies. According to executive echelon theory, managers cannot have a comprehensive understanding of all the relevant aspects due to the complexity of the internal and external environment. Therefore, the manager’s characteristics affect their strategic choices and the company’s behavior [12]. Attention theory also suggests that the key factor in corporate decision-making is how managers allocate their limited attention [13].

As the leader of corporate strategic decision-making, an executive’s willingness to undertake corporate social responsibility is controlled by their awareness. If corporate executives regard corporation social responsibility as an opportunity for corporate development, they could be more inclined to invest in environmental governance, thus improving corporate ESG performance. Therefore, it is of great significance to clarify the relationship between senior managers with an environmental background and corporate ESG performance and the mechanism for promoting corporate sustainable development.

Meanwhile, some scholars have explored the relationship between the individual characteristics of executives and ESG performance [3,5], but there are still two aspects that need to be explored indepth. First, most existing studies focus on the environmental cognition of managers. However, unlike an executive’s environmental cognition, an executive’s environmental background is a relatively objective reflection of the situation, and whether it can have an impact on a company’s ESG performance needs to be further tested. Second, although existing studies have explored the impact of managers on the company’s ESG performance from the perspective of various characteristics, the potential mechanisms have not been further revealed.

Therefore, this study uses the data on China’s A-share listed companies from 2009 to 2021 as the sample and discusses the impact of senior managers with environmental backgrounds on the enterprise’s ESG performance. In addition, from the perspective of environmental investment and green innovation, we further investigate the impact mechanism of the executives’ environmental background on ESG performance and try to reveal the impact mechanisms. Finally, to further test whether enterprise ESG performance can help enterprises achieve the dual goals of the “environment” and the “economy”, this paper discusses the relationship between ESG scores and enterprise performance. The research framework for this paper is shown in Figure 1.

The innovations of this study may be as follows: First, this study supplements executive echelon theory from the perspective of environmental protection. Specifically, based on executive echelon theory, we integrate executives’ environmental characteristics and the ESG performance of enterprises into a unified framework and investigate the relationship between them. Second, we expand the influence path for improving a company’s ESG performance from multiple perspectives and put forward the internal mechanism in terms of enterprise executives. Specifically, this study innovatively examines the impact mechanism of executives’ environmental background on corporate ESG performance in terms of the environmental investment and green innovation effects. Third, we test the heterogeneity of the samples according to the different nature of firms. In non-state-owned and heavily polluting enterprises, executives with environmental professional backgrounds have a significant positive impact on their company’s ESG performance. This finding provides an important reference for relevant enterprises to make strategic decisions.

Based on benefit maximization theory, we further clarify the relationship between a firm’s ESG performance and its economic performance and form a behavior gap repair mechanism for firms to independently improve their ESG performance.

The rest of the article is organized as follows: Section 2 is the literature review; Section 3 is the theoretical analysis; Section 4 presents the research design; Section 5 details the empirical results; and Section 6 presents the conclusions and policy implications.

2. Literature Review

An enterprise’s ESG performance, as an important indicator of sustainable development, is increasingly the subject of attention [14,15]. Unlike traditional external regulatory pressure that drives enterprises’ ESG performance, how enterprises can drive their ESG performance through autonomous motivation is the focus of academic research. The relevant literature can be classified in three ways.

One strand of the literature mainly discusses executives’ characteristics and examines how their characteristics affect internal firm decision-making [16]. The existing literature focuses on the impact of executives’ characteristics, such as gender [17], an overseas background [18], academic experience [19], military experience [20], and environmental perceptions [21], on corporate decision-making. For example, He et al. [19] found that executives can have a positive impact on corporate green innovation if they have held key positions or received higher education. Although the existing literature has examined the impact of various characteristics of executives, there is limited research on executives’ environmental background.

The second type of literature discusses the factors affecting enterprises’ ESG performance. The existing literature mainly starts from internal and external factors of enterprises, among which the internal factors that affect ESG performance mainly focus on a firm’s financial performance [3], digital transformation [4,5], the gender of the directors [22], and the size of the enterprise [23]. For example, Zhong et al. [5] used data from listed companies from 2010 to 2020 and found that digital transformation can have a positive impact on a company’s ESG performance. The external factors affecting ESG performance mainly include policy risk [24], the green finance development level [1], and laws and regulations [25]. For example, Sun et al. [1] considered the pilot zones for green finance reform as a quasi-natural experiment and found that green finance policies can positively affect firms’ ESG performance.

The third type of literature examines the relationship between executives and ESG performance. The existing literature focuses on the influence of subjective and objective conditions of executives on corporate ESG performance. From the perspective of objective conditions, the existing literature mainly examines executive compensation [26], the proportion of female directors [27], green finance [28], and whether the CEO is female [29]. For example, Zhang et al. [26] found that executive compensation can promote corporate ESG performance by improving internal control and information disclosure capabilities. From the perspective of subjective conditions, the existing literature has investigated the impact of executives’ green experience [30], green cognition [31], and early pollution experience [32], on an enterprise’s ESG performance. For example, Wu et al. [31] found that executives’ green cognition can promote an enterprise’s ESG performance.

In summary, although existing studies have focused on executives’ characteristics and ESG performance, three aspects need to be explored further. First, the existing studies on executive characteristics mainly focus on academic background [19] and military background [20], while relatively few studies have been conducted from the perspective of executives’ environmental background. This paper tries to further explore the possible influence of executives’ environmental background on executive decision-making. Second, although there are studies that have examined corporate executives from the perspective of environmental characteristics, most of these studies have focused on the environmental awareness of executives. Unlike environmental awareness, an executive’s environmental background is a more objective indicator. How it affects an enterprise’s ESG performance still needs further verification. Finally, although the existing literature has analyzed the impact of senior executives on a firm’s ESG performance from the perspective of individual characteristics, the specific mechanism of these effects has not been fully explained. How the environmental background of executives specifically influences a firm’s ESG performance needs to be studied further.

3. Theoretical Analysis and Research Hypothesis

Enterprises can effectively promote their ESG performance by applying executive echelon and signaling theory. Specifically, senior managers in enterprises make use of their professional expertise and experience to formulate and implement strategic goals and plans. Enterprises recruit executives with environmental backgrounds to convey their commitment to green sustainable development to the market, attract green funds and investors, and enhance the confidence of the executives in the firm’s green strategy, thus encouraging enterprises to make environmentally sustainable decisions.

From the perspective of executive echelon theory, executives could select specific strategic goals and formulate specific strategic plans based on their characteristics, influencing corporate behavior [33]. The experience of early-stage executives may continuously internalize the strategic thinking and behavioral decisions of later-stage executives, that is, executives with environmental backgrounds could be more inclined to promote green development when making corporate strategic decisions due to their early-stage environmental protection experience. From the perspective of signaling theory, information asymmetry among market participants is a key factor leading to adverse selection and moral hazards. To address this challenge, parties may be able to reduce the adverse effects of information asymmetry by sending clear signals to show their true situation. For example, by recruiting executives with an environmental background, companies are not only able to communicate their commitment to green development to the market, but are also able to attract investors and gain consumer recognition of their corporate environmental responsibility. This strategy helps the company to establish a good image in the market and increases the confidence of its executives in the firm’s green strategy, which in turn encourages them to make more environmentally friendly and sustainable decisions. Therefore, we propose:

Hypothesis 1.

Executives with environmental backgrounds can significantly improve the enterprise’s ESG performance.

The environmental investment effect is designed to attract capital to projects that benefit the environment [34,35,36]. In this study, we argue that the environmental background of executives has the potential to trigger environmental investment effects, thereby improving firms’ ESG performance. In other words, the environmental investment effect is an important way in which the environmental background of executives can promote firms’ ESG performance. This view is supported by the theory of executive gradient, which states that executives with an environmental background are more likely to support environmental investment due to their individual characteristics [37]. Environmental investment usually relates to energy conservation, emissions reduction, and sustainable energy [38,39,40]. Therefore, the existence of the environmental background of executives is not only consistent with the theory of executive gradient, but can also promote ESG performance by encouraging firms to choose more environmentally friendly investment projects in practice [41]. In addition, executives with environmental backgrounds often have professional knowledge and practical experience, they can better understand environmental protection policies, technological development trends, and can more accurately assess the risks in order to encourage enterprises to increase their environmental investment. In conclusion, the environmental background of executives can motivate companies to develop in a more sustainable direction. By favoring green projects in investment decisions, executives create sustainable value that will benefit the company’s ESG performance. Therefore, we propose:

Hypothesis 2.

The environmental background of senior executives can promote firms’ ESG performance through the environmental investment effect.

Green innovation is also widely regarded in modern economics as a key factor in promoting economic transformation [42]. In this study, we explore indepth how executives with an environmental background can significantly improve their company’s ESG performance through green innovation. First of all, from the internal perspective of the enterprise, these executives are more inclined to choose the green innovation path because they are deeply influenced by the concept of environmental protection. This phenomenon echoes the theory of path dependence in economics, which states that a firm’s decisions and behavior are often influenced by its historical experience and the available resources. Executives with an environmental background tend to internalize the concept of environmental protection into the firm’s long-term strategy, thus promoting the development of the enterprise in a more environmentally friendly direction [33]. Secondly, from the external perspective of the enterprise, a good government–enterprise relationship is crucial for the firm’s long-term development [12,43,44]. This is related to the theory of transaction costs in economics. A good relationship between the government and the enterprise can reduce the transaction costs of enterprises in terms of resource acquisition, market access, and policy support. At the same time, based on signal transmission theory, executives with environmental backgrounds can convey their firm’s environmental preferences to the government through the implementation of green innovation, thus helping to maintain a good government–enterprise relationship. This positive interaction not only enhances the corporate image of firms, but also helps to win more policy support and market opportunities for enterprises [45]. Therefore, managers with environmental backgrounds are more likely to become advocates and practitioners of green innovation, which helps to promote the continuous improvement of their firm’s ESG performance. Therefore, we propose:

Hypothesis 3.

The environmental protection background of executives can promote corporate ESG performance through the green innovation effect.

The ESG performance of enterprises is influenced by many factors, among which ownership attributes and industry characteristics are two important dimensions. Compared with private enterprises, state-owned enterprises (SOEs) are usually subject to stricter regulatory regimes and face higher expectations from the public due to their close ties with state institutions. In addition, SOEs have access to a range of resources and support, including government subsidies and preferential policies, providing advantages in terms of their long-term goals and strategic planning. As an important part of strategic planning, SOEs are more inclined to make continuous investments in the ESG field, thus showing more significant outcomes in terms of their ESG performance. Based on this, it can be inferred that the marginal impact of executives with environmental backgrounds on the ESG performance of SOEs may be relatively small compared with private enterprises [46]. Meanwhile, the green transformation of heavily polluting industries is particularly critical in driving the country towards carbon peaking and carbon neutrality. This paper suggests that members of the senior management team with environmental professional backgrounds may have different impacts on the ESG performance of heavy-polluting and non-heavy-polluting enterprises. Compared with non-heavy-polluting enterprises, heavy-polluting enterprises have a more significant impact on the environment due to the inherent characteristics of high energy consumption, high emissions, and high pollution in terms of their production activities and, therefore, face more severe environmental protection pressure [47]. In these companies, executives with an environmental background are more likely to adopt and promote strategies and programs conducive to environmental protection when faced with environmental decisions. Based on the above analysis, we propose:

Hypothesis 4.

The environmental protection background of executives has a more significant promoting effect on the ESG performance of non-state-owned and heavily polluting enterprises.

4. Research Design

4.1. Econometric Model

4.1.1. The Baseline Model

To test whether the environmental background of managers can have a positive impact on the ESG performance of companies, as detailed in Hypothesis 1, this study constructs a panel model and adds the firm-fixed and year-fixed effects as follows:

$$ES{G}_{it}={\alpha }_0+{\alpha }_{1}S{E}_{it}+{\alpha }_i{X}_{it}+{\mu }_i+{\sigma }_t+{\epsilon }_{it}$$

(1)

where $ES{G}_{it}$ is the ESG score of the enterprise and $S{E}_{it}$ is the variable of the executive’s environmental background in enterprise i during the period t, proxied according to whether the company hires such executives and the number of executives with environmental backgrounds. In this paper, $Hdu{m}_{it}$ is used to represent whether executives with environmental backgrounds are employed, $Lg{g}_{it}$ is the number of managers with environmental backgrounds, ${\alpha }_0$ is the intercept term, ${\alpha }_1$ describes the impact of the executive’s environmental background on the firm’s ESG performance. Moreover, $X_{it}$ is the control variable, including the debt-to-asset ratio (Lev), the return on total assets (Roa), the revenue growth rate (Gro), ownership concentration (Bal), the dual role of the chair and chief executive (Dua), board size (Boa), and the number of staff (Sta). In addition, ${\mu }_i$ and ${\sigma }_t$ are the individual and time-fixed term, and ${\epsilon }_{it}$ is the residual term.

4.1.2. Mediating Effect Model

$$M_{it}={\beta }_0+{\beta }_{1}S{E}_{it}+{\beta }_i{X}_{it}+{\mu }_i+{\sigma }_t+{\epsilon }_{it}$$

(2)

$$ES{G}_{it}={\rho }_0+{\rho }_{1}S{E}_{it}+{\rho }_2{M}_{it}+{\rho }_i{X}_{it}+{\mu }_i+{\sigma }_t+{\epsilon }_{it}$$

(3)

$M_{it}$ represents the mediating variable, including environmental investment and green innovation; $S{E}_{it}$ refers to the environmental background of the senior executives; and the other variables are similar to those described above. Moreover, ${\beta }_0$ and ${\rho }_0$ are intercept terms, ${\beta }_1$ describes the direct impact of the environmental background of the executives on the mediating variables (environmental protection investment and green innovation), and ${\rho }_1$ explains the degree of impact of the environmental background of the executives on the firm’s ESG performance. In addition, ${\rho }_2$ describes the degree of influence of the mediating variables on the firm’s ESG performance.

4.2. Variables

4.2.1. Dependent Variable

The dependent variable is the firm’s ESG performance. Following He et al. [48], we obtained the ESG scores of China’s A-share listed firms in that year from Bloomberg’s database and the logarithms needed for the measurement. The score is composed of ESG indicators for three different dimensions: environment, society, and corporate governance. According to the importance and impact of the different indicators on companies, the final weighted total ESG score is calculated.

4.2.2. Explanatory Variables

In this study, the explanatory variables focus on the environmental background of the executives and include two aspects: whether the firm hires executives with environmental backgrounds (Hdum) and the number of such executives (Lgg). First, we use a dummy variable to indicate whether the company has hired an executive with an environmental background, where a value of 1 indicates that the company has hired at least one such executive, and a value of 0 indicates that it has not hired such an executive. In identifying executives with an environmental background, in reference to Wang et al. [33], we identify their environmental background through keywords that appear in the executives’ resumes, such as “environmental”, “environment”, “green”, “sustainable”, etc. As for the number of managers with environmental backgrounds employed by enterprises, we use logarithmic transformation to measure the total number of managers with environmental backgrounds employed by enterprises.

4.2.3. Mediating Variables

The mediating variables in this paper are environmental protection investment and green innovation. Following Liu et al. [49], environmental protection investment (Epi) is measured by the firm’s expenditure on environmental protection. In previous studies, the number of enterprise patents is a common indicator to measure innovation performance [2,50]. Therefore, this paper uses the total number of green invention patents and the utility models of enterprises in the current year to measure the enterprise’s green innovation (Gi).

4.2.4. Other Control Variables

To estimate the impact of the executives’ environmental background on firms’ ESG performance, we also control for a series of enterprise-level variables that may affect enterprises’ ESG performance, in reference to Zhong et al. [5]. Specifically, these variables include the debt-to-asset ratio (Lev), the return on total assets (Roa), the revenue growth rate (Gro), ownership concentration (Bal), board size (Boa), the number of employees (Sta), and the dual role of the chairman and chief executive (Dua). Such controls help to improve the science and reliability of the research and make the results more convincing.

4.3. Data Source

Using the data on China’s A-share listed companies from 2009 to 2021 as the research sample, this paper examines the impact of executives’ environmental backgrounds on ESG. The ESG data of the companies are obtained from Bloomberg, and the executives’ environmental background and the company-level control variables are obtained from the CSMAR database. To ensure the validity of the data sample, we took the following measures: (1) removed the companies that cannot trade normally, such as ST and *ST firms; (2) removed the firms belonging to finance and real estate industries; (3) removed the companies with less than 10 employees; and (4) the final sample is double-tailed by 1%. A total of 12,753 listed companies were obtained for the period from 2009 to 2021. The descriptive statistics of the data used in this paper are shown in

Table 1. Descriptive statistics.

Variables	(1) N	(2) Mean	(3) Sd	(4) Min	(5) Max
ESG	12,753	3.344	0.313	2.390	4.279
Hdum	12,753	0.317	0.465	0.000	1.000
Lgg	12,753	0.317	0.532	0.000	3.296
Lev	12,753	0.480	0.191	0.0770	0.882
Roa	12,753	0.0510	0.0620	−0.163	0.239
Gro	12,753	0.177	0.383	−0.472	2.499
Bal	12,753	3.542	0.470	2.280	4.349
Dua	12,753	0.094	0.339	0.000	1.000
Boa	12,753	9.098	1.918	3.000	18.00
Sta	12,753	8.558	1.269	2.398	13.22

. It can be found that the maximum value of the explained variable, ESG, in this paper is 4.279, the minimum value is 2.390, and the standard deviation is 0.313, which indicates that the ESG score of the enterprises is at a relatively low level to some extent and there is a gap between enterprises’ ESG performance. In addition,

Table 2. Correlation analysis results for the variables.

Var	(1) ESG	(2) Hdum	(3) Lgg	(4) Lev	(5) Gro	(6) Roa	(7) Bal	(8) Dua	(8) Boa	(9) Sta	VIF
ESG	1.00										-
Hdum	0.272 ***	1.00									2.865
Lgg	0.123 ***	0.492 ***	1.000								1.974
Lev	−0.189 **	−0.225 *	−0.136 **	1.00							1.536
Gro	0.075 **	0.109 *	0.236 **	−0.035 *	1.000						2.806
Roa	0.274 *	0.149 **	0.210 **	−0.139 **	0.203 ***	1.000					3.382
Bal	−0.147 **	0.303 **	0.137 *	−0.274	0.089 *	−0.281 *	1.000				2.27
Dua	−0.017	−0.114	−0.264	0.257 **	0.157 **	0.147	0.242 *	1.000			1.639
Boa	0.172 *	0.169 *	0.024 *	−0.193 **	0.037	0.124 *	0.079	0.157 *	1.000		2.218
Sta	0.088 ***	0.207 ***	0.138 **	−0.285 *	0.127 **	0.158 **	0.192 **	0.367 *	0.287 ***	1.000	2.089

Note: * p < 0.1, ** p < 0.05, *** p < 0.01.

shows the results of the correlation tests between the above variables. The analysis results reveal that there are significant correlations among most of the variables and the correlation coefficients do not exceed 0.8, indicating that the degree of correlation between the variables is moderate. In addition, the variational inflation factor (VIF) values are all below 10, which further confirms that there is no significant multicollinearity problem between the variables. According to Hair et al. [51], this finding is critical to ensuring the reliability of subsequent multiple regression analyses.

5. Empirical Results

5.1. The Results of the Baseline Regression

Table 3. The results of the baseline regression.

	(1)	(2)	(3)	(4)
Variable	ESG	ESG	ESG	ESG
Hdum	0.032 ***	0.019 ***
	(4.82)	(4.75)
Lgg			0.041 ***	0.027 ***
			(5.25)	(4.97)
Lev		−0.103 ***		−0.073 ***
		(−3.92)		(−2.84)
Roa		0.108 ***		0.146 ***
		(4.19)		(4.14)
Gro		0.205 **		0.163 *
		(1.98)		(1.85)
Bal		−0.014 *		−0.015 *
		(−1.78)		(−1.83)
Dua		−0.006		−0.006
		(−1.22)		(−1.23)
Boa		0.005 ***		0.005 ***
		(3.37)		(3.35)
Sta		0.019 ***		0.019 ***
		(5.99)		(5.97)
Constant	1.941 ***	1.765 ***	1.517 ***	1.602 ***
	(5.35)	(6.62)	(3.98)	(2.69)
Firm-fixed effect	YES	YES	YES	YES
Year-fixed effect	YES	YES	YES	YES
Observations	12,753	12,753	12,753	12,753
R-squared	0.263	0.564	0.316	0.602

Note: T values are shown in parentheses, and * p < 0.1, ** p < 0.05, *** p < 0.01.

shows the baseline regression results. Columns (1) and (2) examine the impact of the presence of executives with environmental backgrounds on the firm’s ESG performance, while columns (3) and (4) examine the impact of the number of executives with environmental backgrounds on the firm’s ESG performance. The regression results in columns (1) and (2) show that the coefficient before hiring executives with environmental backgrounds is significantly positive at the significance level of 1%. The regression results in columns (3) and (4) show that the higher the number of executives with environmental backgrounds, the higher the ESG performance. The above results prove that employing executives with environmental backgrounds can significantly improve the firm’s ESG performance. The empirical results, as revealed by executive echelon theory, show that the environmental background of executives can profoundly affect their internalization of sustainable development. Executives with an environmental background tend to incorporate that background into their company’s strategic decisions. This integration makes companies more likely to improve their ESG performance. This result is similar to the findings by Zhong et al. [5], supporting Hypothesis 1 that executives with an environmental background can indeed positively improve their firm’s ESG performance. At the same time, the larger the amount of employees, the more human resources are available to the enterprise, the more specialized the division of labor can be within the enterprise, and the more the operational efficiency of the enterprise can be improved, thus improving the enterprise’s ESG performance.

5.2. Long-Term Effect

Table 3 shows that executives with environmental backgrounds have a positive impact on the enterprise’s ESG performance. However, how long the impact of executives with environmental backgrounds can last in terms of the firm’s ESG performance has rarely been studied. Therefore, based on models (1) and (2), this paper further introduces the multi-period lag term to explore the lasting effect of executives’ environmental background on enterprises’ ESG performance, in reference to [33]. Figure 2 provides an intuitive demonstration of the lag effect of executives’ environmental background on corporate ESG performance. The top half of the graph shows the impact of hiring an executive with an environmental background (Hdum) on the firm’s ESG performance, while the bottom half shows the impact of the number of such executives (Lgg) on the firm’s ESG performance. L1 to L5, representing effects with a lag of one to five periods, respectively, reveal a dynamic relationship over a time series that echoes the path dependence theory in economics, which emphasizes the influence of initial conditions on the long-term impact. The specific analysis shows that if the regression segment intersects with or contains the 0 axis, it implies that the environmental background of the executives has no impact on the firm’s ESG performance; on the contrary, if the regression segment does not intersect with or contain the 0 axis, it indicates that the environmental background of the executives has a positive and significant impact on the firm’s ESG performance, in which senior executives are seen as a valuable resource for a business whose specific environmental context may give the firm a unique competitive advantage.

In the first three periods of observation, we found that the regression coefficient between the executives with environmental backgrounds and the firm’s ESG performance is significant, indicating a positive correlation between them. However, from the fourth phase onwards, this significance is no longer sustained, and the line segment begins to contain the 0 axis, suggesting a weakening of the influence. The findings in this study highlight the phased role of the executive’s environmental background in promoting the firm’s ESG performance. This suggests that firms can effectively improve their ESG performance in the early stages by hiring executives with environmental backgrounds, but this effect may diminish over time, which is consistent with the theory of adaptive expectations in economics, in which firms’ expectations and behaviors adjust based on experience.

5.3. Mediating Effect Test

Table 4. The results of the mediating effects of environmental investment.

	(1)	(2)	(3)	(4)
Variable	Epi	ESG	Epi	ESG
Hdum	0.015 ***	0.021 **
	(3.07)	(2.36)
Lgg			0.009 **	0.023 ***
			(2.23)	(3.54)
Epi		0.006 **		0.003 **
		(2.21)		(1.98)
Constant	1.421 ***	1.587 ***	1.655 ***	1.958 ***
	(2.99)	(3.51)	(4.57)	(3.29)
Control	YES	YES	YES	YES
Firm fixed	YES	YES	YES	YES
Year fixed	YES	YES	YES	YES
Observations	12,753	12,753	12,573	12,753
R-squared	0.153	0.421	0.244	0.496

Note: T values are shown in parentheses, and ** p < 0.05, *** p < 0.01.

presents the regression results on how the environmental background of senior executives affects the enterprise’s ESG performance through the effect of environmental investment. Column (1) shows that the impact of hiring senior managers with an environmental background on environmental investment is significantly positive at the 1% level. The regression results in column (2) show that the regression coefficient of hiring senior managers with environmental backgrounds is simultaneously significant with enterprises’ environmental investment. This result indicates that employing senior managers with environmental backgrounds can promote enterprises’ environmental protection investment, thus promoting enterprises’ ESG performance.

Similarly, the empirical results in columns (3) and (4) show that the number of executives with environmental backgrounds employed by enterprises can still improve the enterprises’ ESG performance by promoting environmental investment. These executives, due to their extensive environmental experience, are more inclined to consider environmental investments in their decision-making process, thus driving the business in a more sustainable direction. As we have discussed before, senior executives with an environmental background are often able to identify and select investments that have positive externalities [18]. This tendency not only promotes environmental sustainability, but also leads to superior ESG performance. This provides strong empirical support for Hypothesis 2. This result is consistent with the conclusion by Cao et al. [41].

Table 5. The results of the mediating effects of green innovation.

	(1)	(2)	(3)	(4)
Variable	Gi	ESG	Gi	ESG
Hdum	0.126 **	0.022 **
	(2.05)	(1.98)
Lgg			0.096 ***	0.025 ***
			(3.30)	(3.09)
Gi		0.002 ***		0.001 ***
		(3.17)		(2.63)
Constant	1.171 **	1.257 **	1.579 ***	1.836 ***
	(2.29)	(2.52)	(2.76)	(3.89)
Control	YES	YES	YES	YES
Firm fixed	YES	YES	YES	YES
Year fixed	YES	YES	YES	YES
Observations	12,753	12,753	12,573	12,753
R-squared	0.203	0.396	0.224	0.457

Note: T values are shown in parentheses, and ** p < 0.05, *** p < 0.01.

presents the regression results on how the environmental background of senior executives affects the enterprise’s ESG performance by generating a green innovation effect. The regression results in the first column show that the regression coefficient between whether an enterprise employs senior managers with environmental backgrounds and corporate green innovation is significantly positive at the significance level of 5%. The regression coefficient before enterprises employ senior managers with environmental backgrounds is still significant at the significance level of 5%, and the regression coefficient of enterprise green innovation is significantly positive. The results show that the hiring of senior managers with environmental backgrounds can promote green innovation, produce a green innovation effect, and then improve the firm’s ESG performance. Similarly, columns (3) and (4) in Table 5 show the promotional effect of green innovation within the enterprises, thus promoting the enterprises’ ESG performance. The reason for this result may be that executives with environmental backgrounds tend toward green innovation due to their internalized environmental protection concepts and the promotional effect of green innovation. At the same time, based on signal theory, environmental executives pass on their environmental preferences to the government through green innovation, and help to maintain a good relationship between the government and the enterprise, thus improving the firm’s ESG performance [21].

5.4. Robustness Test

5.4.1. Replacing the Dependent Variable

To verify the robustness of the empirical results, the ESG scores of Huazheng are adopted as a substitute variable for the ESG performance [52,53]. Columns (1) and (2) in

Table 6. The results of the robustness test.

Variable	Replacing Dependent Variable		Replacing Estimation Model		Controlling Time Trend
	(1) ESG	(2) ESG	(3) PSM	(4) Tobit	(5) ESG	(6) ESG
Hdum	0.102 ***		0.035 ***		0.018 ***
	(3.17)		(3.29)		(3.60)
Lgg		0.085 ***		0.029 ***		0.020 ***
		(3.50)		(2.86)		(3.33)
Constant	1.153 ***	1.526 ***	1.105 ***	2.614 ***	1.074 ***	1.266 ***
	(3.32)	(2.95)	(3.44)	(4.06)	(3.88)	(2.60)
Control	YES	YES	YES	YES	YES	YES
Year fixed	YES	YES	YES	YES	YES	YES
Firm fixed	YES	YES	YES	YES	YES	YES
Observation	12,753	12,753	10,574	11,579	12,753	12,753
R-squared	0.424	0.398	0.528	0.581	0.611	0.597

Note: T values are shown in parentheses, and *** p < 0.01.

show that the coefficient between senior managers with environmental backgrounds and the number of senior managers with environmental protection backgrounds is still significantly positive at the significance level of 1%, despite the change in the measurement method involving the dependent variable. That is, senior managers with environmental backgrounds employed by enterprises and the number of senior managers employed by enterprises can significantly improve the enterprise’s ESG performance.

5.4.2. Replacing the Estimation Model

In this paper, the propensity score matching method and the mixed Tobit model are used to replace the panel model in order to further test the robustness of the results [54,55,56]. The regression results are reported in columns (3) and (4) in Table 6. Column (3) shows the results of the propensity score matching regression of companies’ ESG performance on whether companies employ senior managers with an environmental background. The result shows that employing senior managers with environmental backgrounds can positively promote the firm’s ESG performance. Column (4) shows the regression results of the mixed Tobit model on the number of senior managers with environmental backgrounds employed by companies and the firm’s ESG performance. The results show that the number of senior managers with environmental backgrounds employed by companies can positively affect the firm’s ESG performance.

5.4.3. Controlling Time Trend

Considering other influencing factors of ESG performance, such as the time trend of the control variables, if there is a significant difference between hiring and not hiring senior managers with environmental backgrounds, it may affect the regression results. Therefore, following Moser and Voena [57], we control for the time trend of the factors affecting ESG performance. Specifically, this paper constructs third-order polynomials between the control variables and time trends and adds these two types of interaction terms to the benchmark model to control many of the influencing factors that affect an enterprise’s ESG performance. The specific model construction is shown below:

$$ES{G}_{it}={\beta }_0+{\beta }_{1}SE+{\beta }_i{X}_{it}+D_i\left(X_{it}\times f\left(T\right)\right)+{\mu }_i+{\sigma }_t+{\epsilon }_{it}$$

(4)

where $f\left(T\right)$ is the third-order polynomial of the time trend, ${\sigma }_t$ is the time dummy variable, and the interaction term $X_{it}\times f\left(T\right)$ is used to control for the time trend of the control variable. The regression results are presented in columns (5) and (6) in Table 6. The regression results show that when the time trend of the control variables is controlled in this paper, the regression coefficient between environmental background and the number of senior managers with an environmental background is still significantly positive, which means that the promoting effect of an environmental background on the firm’s ESG performance is robust.

5.5. Heterogeneity Test

5.5.1. Heterogeneity of Enterprise Ownership

Considering that the environmental background of senior executives may have a differentiated impact on the ESG performance of firms with different natures [28], this paper conducts a group regression between state-owned and non-state-owned enterprises, and the regression results are shown in

Table 7. The results of the heterogeneity test.

Variable	(1)	(2)	(3)	(4)
	SOEs		Non-SOEs
	ESG	ESG	ESG	ESG
Hdum	0.008 **		0.020 ***
	(1.99)		(4.01)
Lgg		0.013 **		0.027 ***
		(2.37)		(3.89)
Constant	1.692 ***	1.824 ***	1.784 ***	1.337 ***
	(2.80)	(3.43)	(4.09)	(4.14)
Control variables	YES	YES	YES	YES
Year fixed	YES	YES	YES	YES
Firm fixed	YES	YES	YES	YES
Observations	7391	7391	5362	5362
R-squared	0.442	0.392	0.479	0.502

Note: T values are shown in parentheses, and ** p < 0.05, *** p < 0.01.

. The regression results show that although the environmental background of senior executives can positively promote the ESG performance of both state-owned enterprises and non-state-owned enterprises, the degree of promotion is different, that is, the environmental background of senior executives has a more obvious promoting effect on non-state-owned enterprises. The reason for this result may be that due to the nature of state-owned enterprises themselves, compared with non-state-owned enterprises, state-owned enterprises respond more quickly to the relevant green policies of the government and are more able to respond to relevant green policies, that is, when making strategic decisions, enterprises are more inclined to choose green development strategies taking into account the current main trends in green development.

5.5.2. The Heterogeneity of Industry Type

Considering that the green transformation of heavily polluting industries is an important path to achieve the “dual carbon” goal [2], the government has turned to heavily polluting enterprises to guide their green transformation and improve their ESG performance. In this paper, the sample enterprises are divided into heavy polluters and non-heavy polluters, and the heterogeneity effect of the environmental protection background of the senior executives on these firms is discussed. In the specific selection of enterprises in heavy-polluting industries, we combine the data with the classification standard of national economy industries in 2012, in reference to Zhou et al. [47]. This paper selects 18 kinds of A-share listed enterprises in heavy-polluting industries as heavy-polluting enterprises, and the remaining sample enterprises as non-heavy-polluting enterprises.

Columns (1)–(4) show that the environmental background of executives can positively promote the ESG performance of heavily polluting enterprises, but has no obvious impact on the ESG performance of non-heavily polluting enterprises. The possible reason could be that non-heavy polluting enterprises tend to choose green strategies and assume corporate social and environmental responsibilities. Therefore, whether or not an enterprise employs senior managers with an environmental background and the number of such managers employed cannot have a substantial impact on the ESG performance of the enterprise (

Table 8. The results of the heterogeneity test.

Variable	(1)	(2)	(3)	(4)
	Heavy Pollution		Non-Heavy Pollution
	ESG	ESG	ESG	ESG
Hdum	0.026 ***		0.012
	(3.71)		(1.33)
Lgg		0.023 ***		0.009
		(2.87)		(4.50)
Constant	1.940 ***	1.418 ***	1.663 ***	1.282 ***
	(3.16)	(2.70)	(3.05)	(2.77)
Control variables	YES	YES	YES	YES
Year fixed	YES	YES	YES	YES
Firm fixed	YES	YES	YES	YES
Observations	5587	5587	7166	7166
R-squared	0.429	0.354	0.216	0.208

Note: T values are shown in parentheses, and *** p < 0.01.

).

5.6. Further Tests

To further test whether an enterprise’s ESG performance can help enterprises achieve the dual goal of the “environment” and the “economy”, this paper further discusses the relationship between an enterprise’s ESG performance and an enterprise’s economic performance. Two methods, the Levinsohn and Petrin (LP) and Olley–Pakes (OP) approached, are used to calculate the total factor productivity of enterprises and measure their economic performance. The OP method assumes that firms make investment decisions based on their current productivity situation, so a firm’s current investment is used as a proxy variable of unobserved productivity shocks, thus solving the problem of simultaneity bias [55]. Compared with the OP method, the LP method does not use the investment amount as a proxy variable, but uses the intermediate product input index [58].

As can be seen from the regression results in

Table 9. The results of the further tests.

Variable	(1)	(2)
	TFP_LP	TFP_OP
ESG	0.168 ***	0.225 ***
	(3.53)	(2.83)
Constant	2.457 ***	2.711 ***
	(4.33)	(3.74)
Control variables	YES	YES
Year fixed	YES	YES
Firm fixed	YES	YES
Observations	12,753	10,068
R-squared	0.308	0.376

Note: T values are shown in parentheses, and *** p < 0.01.

, both the ESG performance and its regression coefficient of the total factor productivity calculated by the LP and OP methods are significantly positive at the significance level of 1%, which indicates that a firm’s ESG performance can positively promote the total factor productivity of enterprises. The reason may be that the disclosure of ESG information by enterprises alleviates the information asymmetry in the market, and the superior ESG performance of enterprises means that enterprises are more inclined to assume social and environmental responsibilities. The transmission of this signal can attract green capital into enterprises, reduce production costs, and improve economic benefits.

6. Conclusions and Policy Implications

Based on executive echelon theory, this paper uses the data on China’s A-share listed companies from 2009 to 2021 to investigate the relationship between the senior managers with environmental backgrounds employed by enterprises and enterprises’ ESG performance, and further explores the potential mechanism of action. The results find that, firstly, the recruitment of senior managers with an environmental background can significantly improve the firm’s ESG performance and it has a lasting effect. Secondly, based on signal theory, we propose that executives’ environmental backgrounds can generate an environmental investment effect and green innovation effect, thus improving the firm’s ESG performance. Thirdly, under the constraints of the heterogeneity of the enterprise’s nature and industry characteristics, the environmental background of executives plays a different role in promoting the firm’s ESG performance. Specifically, the environmental background of executives plays a more important role in promoting the ESG performance of non-state-owned enterprises and heavily polluting enterprises. Fourthly, the ESG performance of enterprises can significantly promote the economic performance of enterprises and achieve a win–win situation for the “environment” and the “economy”.

Although this paper has discussed the impact of the executives’ environmental background on the firm’s ESG performance, it has not yet explored the boundary conditions between them. Subsequent research can further investigate the boundary conditions that affect the relationship between the environmental background of executives and enterprises’ ESG performance, such as environmental regulation and the digitalization level. In addition, this paper also discusses the intermediary mechanism from the perspective of environmental protection investment and green innovation and explores other possible mechanisms. For example, based on the theoretical basis of this paper, the mediating role of variables, such as information asymmetry and green investor entry, can be explored in the future.

Therefore, we put forward some policy implications. From the perspective of enterprises, the environmental protection background of executives can have a positive impact on the firm’s ESG performance. Firstly, enterprises should actively develop a scientific and reasonable executive recruitment mechanism, consider hiring senior managers who attach importance to social and environmental governance, and assume corporate social and environmental responsibilities, to achieve a win–win situation for the enterprise “economy” and the “environment”. Secondly, firms should improve the decision-making mechanism of corporate executives and ensure a general tone of corporate sustainable development. Thirdly, enterprises should improve the corresponding systems and mechanisms that can enable executives with environmental protection backgrounds to play to their talents, in order to achieve a high amount of synergy between different talents and systems. Fourth, enterprises can set up a special environmental protection innovation fund to provide sufficient resources and support to executives and their teams with environmental protection backgrounds. To enhance the power of green governance and sustainable development in enterprises, and play to the advantages of executive governance, an environmental protection barrier can be added to the decision-making processes in enterprises.

From the government perspective, first, it should be considered that the environmental background of executives may have a differentiated impact on firms with different ownership types and different industry attributes in terms of their ESG performance. Therefore, the government should actively guide state-owned enterprises and heavy-polluting enterprises to explore suitable development models, formulate preferential strategies for relevant enterprises to promote their green development transformation, strengthen external supervision to force state-owned enterprises and heavy-polluting enterprises to pay attention to environmental protection, and help enterprises to explore new models of sustainable development. Second, the government should actively improve the green policy system, actively respond to the “green signal” issued by enterprises, guide green capital into enterprises, force “double high” enterprises to eliminate their backward production mode, and promote the sustainable and high-quality development of enterprises. Third, the government should guide all sectors of society to pay attention to environmental protection investment, adopt policies and measures to guide enterprises to channel funds into green projects, improve the supervision mechanism, and realize the effective combination of government “supervision” and enterprise “autonomy”. Fourth, the government should reasonably formulate relevant incentive policies to guide enterprises to pay attention to the realization of social benefits and guide them to invest in low-carbon energy saving, resource recycling, and other projects, to encourage enterprises to transform in the direction of efficiency.