The Impact of Corporate Environmental, Social, and Governance Performance on Total Factor Productivity: An Analysis of the Moderating Effect of Environmental Uncertainty

Abstract

Environmental, Social, and Governance (ESG) performance has become a vital instrument for corporations to integrate sustainable development principles into business operations. Against the dual backdrop of disruptions in the international order and economic instability, investigating the impact of corporate ESG performance on total factor productivity (TFP) under environmental uncertainty is of significant importance. Utilizing data from Chinese A-share listed companies spanning the period 2011 to 2022, this study employs a baseline regression model, a mediation effect model, a moderation effect model, and a moderated mediation model to examine the impact of corporate ESG performance on TFP under conditions of environmental uncertainty. The results indicate that (1) corporate ESG performance exerts a positive influence on TFP, particularly in tertiary industry firms, state-owned enterprises (SOEs), and enterprises with lower environmental risks; (2) improving ESG performance helps alleviate financing constraints, enhance human capital, and boost innovation capability, thereby strengthening TFP; and (3) environmental uncertainty moderates the pathway through which ESG performance affects TFP, amplifying its positive effect. Based on these findings, it is recommended that countries collaborate to establish a global, cross-industry platform for sharing ESG practices, develop a stable ESG policy framework and incentive mechanisms, and encourage enterprises to enhance their ESG management and resilient governance capabilities to promote sustainable economic development.

1. Introduction

In 2023, at the 28th Conference of the Parties (COP28) held in Dubai, United Arab Emirates, 198 countries and regions conducted the first global stocktake of the implementation of the Paris Agreement. The assessment revealed that while certain progress has been made, a significant gap remains in meeting the temperature-control targets of the Agreement, underscoring the urgent need for stronger action by all parties. Reviewing the pathways adopted by different countries to pursue green development, it becomes evident that ESG practices constitute a crucial means of reducing carbon emissions and fostering economic growth [1]. For instance, in 2023, the European Union released the Corporate Sustainability Reporting Directive, which strengthened ESG disclosure requirements and spurred the growth of its green bond market to €500 billion in 2024, significantly promoting corporate green development. In the United States, the Securities and Exchange Commission (SEC) advanced new rules on climate-related disclosures, requiring firms to quantify key indicators such as greenhouse gas emissions, thereby accelerating corporate green transformation. China has also taken active steps: in 2024, it issued the Basic Standards for Corporate Sustainability Disclosure (Trial), encouraging and guiding enterprises to voluntarily disclose ESG information. That same year, more than 2280 A-share listed companies—over 41.8% of the total—released ESG-related reports. The rapid diffusion of ESG practices also drove an expansion in China’s green credit market, which surged from RMB 4.9 trillion in 2013 to RMB 30.1 trillion in 2023, making China the largest green credit market worldwide and a key driver of its sustainable economic development.

An in-depth analysis of the mechanism through which the ESG concept drives green economic development reveals that ESG, as a business operation tool integrating sustainable development principles, extends beyond traditional financial metrics to incorporate broader externalities such as social and environmental responsibilities, while also emphasizing internal corporate governance [2]. Consequently, by improving ESG performance, companies can not only more accurately adjust and optimize their factor inputs [3], but also cultivate a green corporate image [4], thereby gaining greater support and trust. This enables firms to access debt financing at lower costs and enhances resource allocation efficiency, which positively impacts their TFP [5]. Furthermore, enhancing ESG performance helps improve internal management efficiency and stimulates technological innovation [6], thereby contributing to increased TFP.

Admittedly, while the ESG paradigm offers a valuable framework for balancing economic development and environmental protection, its adoption and implementation remain relatively lagging in some emerging markets and African regions. Compared with developed economies, developing countries face challenges such as underdeveloped institutional frameworks, weak regulatory enforcement, insufficient market-driven mechanisms, and passive positions in global value chains. These constraints significantly undermine global carbon reduction and green development efforts. As the world’s largest developing country, China’s rapid economic growth in earlier decades was largely achieved at the expense of its resource and environmental carrying capacity [7]. This extensive growth model not only jeopardized sustainability but also led to systemic ecological degradation, escalating social health costs, and long-term economic security risks. However, following the Paris Agreement, China introduced a series of ESG-related policies, swiftly established a comprehensive ESG evaluation system, and developed a robust green finance market that continues to foster its green transition. Against this backdrop, this paper takes China as the focal case, examining how corporate ESG performance influences TFP. Such an inquiry not only facilitates the diffusion and implementation of ESG practices in developing countries but also provides policy insights for developed economies, thereby advancing the global sustainable development agenda.

It is noteworthy that the world is currently undergoing profound restructuring and paradigm shifts, with multiple interwoven and mutually reinforcing factors contributing to mounting global economic instability. U.S. tariff barriers have heightened global trade uncertainty; the prolonged Ukraine crisis has disrupted energy and food markets and upended Europe’s post-Cold War security order; the Israel–Palestine conflict has eroded trust in international rule-making; and the release of Fukushima nuclear wastewater has imposed persistent ecological and health risks. Within this context, two pressing questions arise: Can improved ESG performance still enhance firms’ TFP? And how does environmental uncertainty shape the relationship between ESG practices and TFP? Existing literature has provided little evidence in this regard. To address this gap, this study utilizes data from Chinese A-share listed firms between 2011 and 2022 to examine the impact of ESG performance on TFP under conditions of environmental uncertainty. By providing micro-level empirical evidence, this paper sheds light on how ESG investment functions both as a risk-mitigation mechanism and as a pathway to efficiency gains, enabling firms to pursue sustainable development in a turbulent environment.

The potential marginal contributions of this study are threefold. First, in terms of research content, beyond confirming the positive impact of corporate ESG performance on TFP, this paper examines the heterogeneous effects across different types of enterprises based on industrial sector, ownership structure, and environmental risk exposure. Second, regarding mechanism analysis, it systematically investigates the specific pathways through which ESG performance influences TFP—namely, alleviating financing constraints, enhancing human capital, and stimulating innovation capacity—thereby extending and enriching the existing literature on ESG outcomes. Third, from an environmental modulation perspective, this study explores the moderating effect and underlying mechanism of environmental uncertainty in the relationship between corporate ESG performance and TFP, offering novel theoretical insights into how firms can adapt to uncertainty and turn risks into opportunities.

2. Literature Review and Research Hypotheses

2.1. The Impact of Corporate ESG Performance on TFP

During the early stages of ESG development, the absence of unified and mature evaluation metrics and supervisory mechanisms across countries led some firms to engage in “greenwashing” practices concerning their ESG data. Such behavior not only triggers abnormal fluctuations in the sustainability-linked bond (SLB) market [8] and impedes technological innovation [9], but also exacerbates information asymmetry, thereby eroding public trust [10,11] and increasing corporate financing costs [12]. These effects fundamentally constrain the full realization of ESG’s potential value. To address these challenges and leverage ESG principles in balancing economic growth with environmental protection, international organizations and countries with advanced ESG systems have progressively established multi-tiered regulatory frameworks to systematically prevent and mitigate greenwashing. For instance, the International Capital Market Association (ICMA) released the report “Market Integrity and Greenwashing Risks in Sustainable Finance” [13], providing guidance for enhancing transparency in global sustainable finance. The European Union implemented the Sustainable Finance Disclosure Regulation (SFDR) [14], legally mandating corporate ESG disclosures, while the UK introduced Sustainability Disclosure Requirements (SDR) to further specify reporting standards and supervisory procedures. These measures enhance the measurability, reportability, and verifiability of corporate ESG performance through standardization and stricter compliance. By institutionalizing accountability, they significantly reduce opportunities for greenwashing and facilitate the allocation of capital toward genuinely sustainable economic activities.

Notably, alongside global progress toward carbon neutrality and continuous improvements in ESG regulatory systems, corporate emphasis on ESG performance has shifted from “compliance requirements” to “value drivers.” Proactively enhancing ESG performance has become a crucial pathway for strengthening core competitiveness. Existing research further indicates that the positive impact of ESG performance on TPF is realized through three main mechanisms. First, it reduces operational risks. The adoption of ESG principles compels firms to implement stricter and more transparent measures in environmental management, social responsibility, and corporate governance. This process not only standardizes operations and improves resource efficiency but also enhances market credibility through a positive ESG image, thereby mitigating operational disruptions caused by compliance failures or reputational crises [15]. Second, it ensures business continuity. Strong ESG performance helps establish stable relationships with local communities and regulatory bodies. This reduces external resistance stemming from environmental or social disputes and enables enterprises to comply promptly with regulatory requirements, minimizing operational interruptions due to information asymmetry. Thus, it provides a foundation for long-term stable operations [16]. Finally, ESG serves a dual role in external monitoring and internal motivation. By implementing ESG strategies, firms integrate environmental and social objectives into management evaluation systems, which helps curb short-term opportunistic behavior among executives. Simultaneously, fulfilling social responsibilities enhances employees’ sense of belonging and motivation [17]. Ultimately, productivity improvements are achieved through both optimized governance and activated human capital.

In summary, we contend that improved corporate ESG performance not only enhances resource utilization efficiency but also fosters broader social recognition and market acceptance [18], thereby exerting a positive influence on TFP. Based on this rationale, the following hypothesis is proposed:

H1: 

Improved corporate ESG performance can exert a positive impact on TFP.

2.2. Transmission Mechanisms of ESG Performance on TFP

TFP is a crucial economic indicator that measures the production efficiency of an economy or firm by considering all input factors, such as labor, capital, and technology. Capital, labor, and technology serve not only as fundamental inputs in the production process but also as core determinants of TFP [19]. Optimizing the allocation and utilization of these factors is widely regarded as essential for enhancing TFP. Existing literature examines the determinants of firm-level TFP from both macro and micro perspectives. At the macro level, studies have shown that institutional and economic factors—such as green finance [20], credit allocation [21], talent recruitment policies [10], and tax incentives [22]—significantly influence TFP. From a micro perspective, financing constraints [23], human capital [24], and corporate innovation [25] considerably affect firms’ resource allocation efficiency and, consequently, their TFP. Furthermore, corporate ESG performance may also influence TFP through these three channels.

2.2.1. Capital Factor

In the environmental sector, corporate investments are consistently characterized by a distinct pattern of “high initial costs and slow long-term returns.” On the one hand, the project initiation phase requires substantial capital injection, leading to significant long-term capital commitment and limited liquidity [26]. On the other hand, returns on such investments are influenced by multiple variables, including policy changes, technological upgrades, and fluctuations in market demand, resulting in considerably higher uncertainty compared to conventional business operations. Consequently, during the early stages of ESG adoption, companies often exhibited hesitation or even resistance toward ESG practices, primarily due to financial concerns. ESG-related expenditures are seldom translated into immediate profit or revenue growth in the short term. Instead, they may dilute key financial metrics—such as net profit margin and net operating cash flow—thereby reducing the firm’s appeal in capital markets and indirectly impairing its financing capacity and investor confidence.

However, it is noteworthy that this landscape has undergone a fundamental shift, driven by increasingly stringent global environmental regulations and the rapid development of green financial markets [27]. Today, proactive ESG engagement not only helps cultivate a responsible environmental image but also sends a critical signal to capital markets: the firm has established robust environmental risk management mechanisms and possesses long-term sustainable development capabilities. This signal enhances trust among investors and creditors, enabling firms to gain a competitive advantage in capital acquisition [28]. Furthermore, it facilitates access to green credit and ESG-linked financing instruments, thereby effectively reducing financing costs [29] and forming a virtuous cycle where ESG practices reinforce financial performance. Moreover, improved financing capacity allows enterprises to allocate resources toward more profitable activities, supporting optimal investment decisions and enhancing TFP [30]. For instance, research by Chen and Guariglia [31] on manufacturing firms demonstrates that alleviating financing constraints contributes significantly to TFP growth. Thus, improved ESG performance not only strengthens environmental and social outcomes but also generates tangible economic benefits, thereby positively influencing TFP. Based on this reasoning, we propose the following hypothesis:

H2(a): 

Regarding capital factors, superior corporate ESG performance mitigates financing constraints, thereby exerting a positive influence on TFP.

2.2.2. Labor Factor

In the current development of the labor market, professionals’ career preferences have shifted from traditional one-dimensional factors such as salary and promotion to a more comprehensive evaluation of organizational characteristics. Among these, “humanized” organizational management—including work–life balance, inclusive culture, and support for individual development—has become a crucial, if not decisive, criterion in employer evaluation [18]. By implementing ESG practices, companies can not only provide fair and reasonable working conditions that safeguard employees’ fundamental rights and welfare but also enhance their reputation through transparent and accountable governance, thereby strengthening their appeal to talent [32]. It is particularly noteworthy that, against the backdrop of intensifying global competition and rapid digital and industrial transformation, the essence of inter-firm rivalry has increasingly become a competition for talent. Top talent—with their solid expertise, scarce core skills, and capacity for innovation—constitutes the primary driving force behind technological breakthroughs, product and service upgrades, as well as the optimization of management processes and operational efficiency. These capabilities are essential for building a sustainable competitive advantage. Therefore, adopting ESG-oriented humanized management to attract and retain high-quality talent has become an imperative for firms seeking to adapt to contemporary challenges and improve TFP. Based on this, we propose the following hypothesis:

H2(b): 

With respect to labor factors, enhanced corporate ESG performance contributes to human capital improvement, thereby positively affecting TFP.

2.2.3. Technological Factor

Engaging in green innovation activities requires enterprises to make substantial fixed-capital investments in core R&D infrastructure, environmental equipment, and green project development. These efforts demand consistent cash flow to ensure continuous technological iteration and commercial deployment, thereby facilitating the transition of innovations from laboratory research to market application. However, empirical studies have demonstrated that the comprehensive benefits derived from green innovation—including both direct economic returns and indirect value-added effects—significantly exceed the initial costs in the long term [33]. Particularly within the context of increasingly stringent environmental regulations and rising sustainability standards, policy drivers are accelerating market demand for green products and services, thereby expanding the application scenarios for green innovations. Furthermore, policy instruments such as carbon trading mechanisms, green subsidies, and tax incentives help reduce the marginal cost of green innovation and improve investment returns. These measures collectively enhance and amplify the economic benefits of green innovation.

It is noteworthy that corporate ESG practices serve as a critical pathway to support green innovation and accelerate its benefits transformation. Green innovation, in turn, significantly enhances TFP by optimizing processes and reducing energy consumption through technological upgrades, expanding markets with eco-friendly products, and improving production and resource allocation efficiency. Within the environmental (E) dimension, integrating sustainability goals into corporate strategy through ESG helps steer green innovation—such as in renewable energy and circular economy—while also alleviating financial constraints by attracting green investment and issuing green bonds, thereby providing essential funding for innovation. In the social (S) and governance (G) dimensions, ESG establishes a responsible management system that internally stimulates R&D vitality through rights protection and innovation incentives [34,35], and externally enhances collaboration through a positive corporate image, facilitating the implementation of innovation and further empowering TFP [36]. Therefore, we propose the following hypothesis:

H2(c): 

Regarding technological factors, superior corporate ESG performance enhances innovation capability, thereby positively influencing TFP.

2.3. The Moderating Role of Environmental Uncertainty

In recent years, factors such as the global COVID-19 pandemic, the Russia–Ukraine conflict, the Israel–Palestine tensions, and sustained U.S. tariff increases have contributed to an increasingly complex external environment for enterprises, which may significantly influence corporate ESG investments.

Firstly, rising environmental uncertainty undermines the risk-taking willingness of both retail and institutional investors, triggering increased risk aversion in the market. This leads to a contraction in market liquidity and a reduction in the supply of available capital [37]. Under these conditions, firms with strong ESG performance demonstrate greater operational resilience and sustainable development potential due to their strengths in environmental risk management, social responsibility, and sound corporate governance. As a result, they gain stronger recognition in capital markets and enjoy significantly higher financing attractiveness compared to firms with weak ESG performance. Nevertheless, the moderating effect of environmental uncertainty on the relationship between corporate ESG performance and financing constraints remains unclear. Simultaneously, environmental uncertainty may further amplify corporate demand for capital. On the one hand, companies need to increase preventive capital reserves to maintain operational stability in response to external risks such as regulatory changes and fluctuations in market demand. On the other hand, meeting increasingly stringent environmental standards requires additional green investments to ensure compliance. This expanded demand for capital may intensify the suppressive effect of financing constraints on TFP. Specifically, limited access to financing restricts investments in critical areas such as technology R&D, equipment upgrades, and optimal resource allocation, ultimately hindering TFP improvement [38].

Secondly, increased environmental uncertainty heightens professionals’ perception of employment risk. As market volatility may lead firms to scale back operations or adjust workforce size, concerns over job security become more pronounced. This drives talent to prioritize stability, reducing labor mobility as individuals seek to avoid unemployment risks. However, firms with strong ESG performance exhibit enhanced appeal in the talent market owing to their robust risk management mechanisms and more stable operational outlook, making them more capable of attracting and retaining high-quality personnel [39]. The interplay between these two factors complicates the precise delineation of environmental uncertainty’s moderating effect on the relationship between corporate ESG performance and human capital. It is particularly noteworthy that, against a backdrop of growing operational uncertainty, the strategic value of talent to enterprises has become increasingly salient. Highly skilled professionals can rapidly assess market conditions and formulate effective response strategies, thereby assisting firms—especially those in high-pollution industries—in strengthening their adaptability to environmental changes and external shocks. This adaptive capacity ultimately translates into improved TFP. Thus, operating under uncertainty may further amplify the positive contribution of human capital to TFP.

Lastly, rising environmental uncertainty tends to disrupt market order, which may not only increase innovation costs but also dampen firms’ willingness to innovate. Faced with ambiguous market prospects, companies often reduce higher-risk innovation investments and shift their focus toward short-term survival needs [40]. However, firms with strong ESG performance generally possess more robust and adaptable organizational structures and greater resilience. These attributes enable heavily polluting enterprises to swiftly detect market shifts, adjust strategic directions in response to turbulent conditions, and provide stable resource support for innovation through more efficient resource allocation, thereby reducing uncertainties in the innovation process [41]. The interplay of these factors makes it challenging to precisely define the impact of corporate ESG performance on technological innovation under heightened environmental uncertainty. In contrast, increased uncertainty can amplify the positive effect of technological innovation on TFP. External instability pressures firms to prioritize innovation as a core strategy, which helps reduce costs and enhance efficiency through process optimization, while product innovation better aligns with evolving market demands, thereby avoiding the “high-cost, low-efficiency” dilemma [42]. More critically, environmental uncertainty drives deeper integration between technological innovation and production factors. Companies tend to cut low-efficiency expenditures and channel funding and talent toward high-value innovation projects. This precise resource allocation minimizes waste and facilitates the efficient translation of innovation outcomes into TFP gains [43]. Based on this reasoning, we propose the following hypothesis:

H3(a): 

Environmental uncertainty positively moderates the impact of corporate ESG performance on TFP.

H3(b): 

Environmental uncertainty may indirectly moderate the positive impact of corporate ESG performance on TFP through the channels of financing constraints, human capital, and technological innovation.

Based on the above hypotheses, this study constructs a conceptual framework illustrating the mechanism through which corporate ESG performance affects TFP, as shown in Figure 1.

3. Research Design

3.1. Baseline Model Specification

To examine the relationship between corporate ESG performance and TFP, this study employs Model (1) to assess the impact of firms’ ESG performance on TFP.

$$TFP\_l{p}_{it}={\alpha }_0+{\beta }_{0}ESG\_a_{it}+{\gamma }_{0}contro{l}_{it}+{\delta }_i+{\lambda }_i+u_t+{\epsilon }_{it}$$

(1)

Among them, $i$ represents the index for firms, and $t$ denotes the time index for years. $TFP\_l{p}_{it}$ represents the firm’s TFP calculated using the LP method, $ESG\_a_{it}$ is the annual average of a firm’s quarterly ESG scores, and $contro{l}_{it}$ denotes the full set of control variables. ${\delta }_i,{\lambda }_i,u_t$ denote industry fixed effects, firm fixed effects, and time fixed effects, respectively. ${\epsilon }_{it}$ denotes the error term in the equation.

3.2. Variable Selection, Measurement, and Data Sources

The operationalization and measurement of core variables are specified as follows:

Dependent Variable: TFP ($TFP\_lp$). This study employs the semi-parametric method proposed by Levinsohn and Petrin [44] (hereinafter referred to as the “LP method”) to estimate firm-level TFP, with robustness tests conducted using TFP measures calculated via both Ordinary Least Squares (OLS) and Olley-Pakes (OP) methods.

Independent Variable: ESG Performance ($ESG\_a$). Following the approach of Xue et al. [45], this study measures corporate ESG performance by assigning values from 1 to 9 corresponding to the C-AAA nine-tier rating scale in the Hua Zheng ESG evaluation system.

Mediating Variables: Financing constraints ($KZ$), human capital ($lnuge$), and technological innovation ($lnpatent$). Given the cross-industry and cross-regional applicability of the $KZ$ index, this study employs it to measure financing constraints. Additionally, human capital is measured as Ln (number of employees with bachelor’s degrees or higher + 1), while technological innovation is quantified as Ln (number of utility model and invention patents + 1).

Moderating Variable: Environmental uncertainty ($EU$). This study draws on the method of Chen et al. [46] to measure environmental uncertainty through the interaction of environmental complexity and dynamism, expressed as $HHI\times EU\_adj$. Specifically, environmental complexity is measured by the Herfindahl-Hirschman Index ($HHI$), with the detailed calculation shown in Model (2).

$$HH{I}_t={\displaystyle \sum _{i=1}^n{\left(\frac{X_{it}}{X_t}\right)}^2}$$

(2)

Here, X_t denotes the total operating revenue of a firm’s industry in year $t$, and $X_{it}$ represents the operating revenue of firm $i$ in year $t$. The ratio $X_{it}/X_t$ t indicates the market share of firm $i$ in year $t$. The resulting measure of environmental complexity is inversely related to the intensity of industry competition.

Environmental dynamism is measured by the abnormal volatility of a firm’s revenue. To mitigate potential confounding effects from overall industry trends and stable revenue growth over time on the estimation of environmental uncertainty [47], this study utilizes data on the sales revenue of listed companies over the past five years. The stable growth component of sales revenue is excluded, and abnormal sales revenue for each of the past five years is estimated using Model (3).

$$Sal{e}_{i,t}={\phi }_0+{\phi }_{1}Yea{r}_{i,t}+{\epsilon }_{i,t}$$

(3)

where $Sale$ represents sales revenue, $Year$ denotes the fiscal year, and the residual term $\epsilon$ from the model represents abnormal sales revenue. Building on this, $EU$ without industry adjustment is measured by calculating the standard deviation of the firm’s abnormal sales revenue over the past five years, divided by the average sales revenue during the same period [48]. Following the approach of Ghosh and Olsen [44], the median of unadjusted $EU$ across all listed firms within the same industry in a given year is defined as the industry-level $EU$. The industry-adjusted $EU$ for each listed firm is then calculated by dividing the firm’s unadjusted $EU$ by the corresponding industry-level value.

Control Variables: Following existing literature [49,50], this study selects total assets ($Ta$), firm age ($Age$), ownership concentration index ($Shrcr10$), net profit ($Np$), return on assets ($Roa$), and inventory turnover ratio ($It$) as control variables, while controlling for $Industry fixed effects$, $Firm fixed effects$, and $Year fixed effects$. The definitions of main variables are presented in

Table 1. Variable Definitions.

Variable Type	Notation	Variable Name	Definition
Dependent Variable	$TFP\_lp$	TFP	LP Estimator of TFP
Independent Variable	$ESG\_a$	ESG Performance	The average of quarterly ESG scores (across four quarters) provided by HuaZheng
Mediating Variables	$KZ$	Financing constraints	KZ Index
	$lnuge$	Human capital	Logarithm of (1 + number of employees with bachelor’s degree or higher)
	$lnpatent$	Technological innovation	Logarithm of (1 + total utility model patent applications)
Moderating Variable	$EU$	Environmental uncertainty	Employing the Ghosh and Olsen methodology for measurement
Control Variables	$Ta$	Total assets	Total Assets
	$Age$	Firm age	Current Year-Founding Year + 1
	$Shrcr10$	Ownership concentration index	Top 10 Tradable Shareholders’ Ownership Percentage
	$Np$	Net profit	Total Profit (Current Year)
	$Roa$	return on assets	(Net Income/Average Total Assets) × 100%
	$It$	Inventory turnover ratio	(Cost of Goods Sold/Average Inventory) × 100%

.

This study selects listed companies in Chinese A-share market from 2011 to 2022 as the research sample. It is important to note that when examining the impact of corporate ESG performance on TFP, including financial firms and ST/*ST companies may distort the results due to heterogeneity in sample composition and logical inconsistency in variable interpretation. On the one hand, financial firms—whose core activities revolve around capital intermediation and risk management—differ fundamentally in how their factor inputs (e.g., risk capital, professional service capabilities) and outputs (e.g., intangible financial service value) are defined. This misalignment with the “optimal resource allocation” logic underlying TFP measurement, which is tailored to non-financial entities, not only leads to biased TFP estimates but also implies that the transmission mechanism through which ESG influences TFP operates indirectly, contrasting sharply with the direct operational channels typical in non-financial firms. Such differences violate the consistency required in variable interpretation. On the other hand, ST/*ST companies, which face delisting risks due to persistent operating losses, prioritize survival above all else. This leads them to cut ESG investments under short-term pressure and often engage in atypical practices—such as asset sales and rushed related-party transactions—that artificially inflate TFP. These actions can create a paradoxical situation where high ESG risk coexists with superficially elevated TFP, thereby disrupting the normal transmission mechanism between ESG performance and TFP. Including both types of firms in the sample would violate core research assumptions and obscure—or even reverse—the true relationship between ESG performance and total factor productivity.

To ensure data accuracy and representativeness, this study excludes firms from the financial and insurance sectors, those classified as Special Treatment (ST and *ST), as well as enterprises with missing observational data in certain years. Through this rigorous screening process, a total of 25,232 firm-year observations were obtained. The ESG ratings used in this study are sourced from the Wind database, while corporate financial and operational data are derived from the China Stock Market & Accounting Research (CSMAR) database.

4. Empirical Results and Analysis

4.1. Descriptive Statistics

Descriptive statistics of key variables are presented in

Table 2. Descriptive Statistics.

Variable	Obs.	Mean	Median	Std. Dev.	Min	Max
$TFP\_lp$	25,232	8.323	8.222	1.067	4.312	13.10
$ESG\_a$	25,232	4.105	4	1.062	1	8
$KZ$	25,232	1.039	1.265	2.496	−11.33	25.70
$lnuge$	25,232	6.103	5.996	1.331	0	12.39
$lnpatent$	25,232	2.120	2.079	1.629	0	9.087
$EU$	25,232	0.285	0.151	0.475	0.000539	14.35
$Ta$	25,232	17.21	3.851	79.50	0.0459	2733
$Age$	25,232	10.62	9	7.435	0	31
$Shrcr10$	25,232	58.04	58.81	15.11	8.779	101.0
$Np$	25,232	5.768	1.241	33.63	−687.4	1460
$Roa$	25,232	0.0495	0.0697	1.131	−174.9	2.877
$It$	25,232	3.282	0.0383	257.7	−3.84 × 10−5	39,291

. The mean ESG performance ($ESG\_a$) of 4.105 suggests that Chinese listed firms’ overall ESG performance remains moderate, indicating substantial room for improvement. TFP ($TFP\_lp$) demonstrates a mean value of 8.323 with a median of 8.222 and minimum value of 4.312. This finding indicates a relatively balanced distribution of TFP among Chinese listed companies, which implies that enhancing TFP requires systematic efficiency improvements across all firms. $EU$ exhibits a mean of 0.285 with a maximum value reaching 14.35, revealing that while most firms face limited $EU$, certain outliers experience significantly heightened uncertainty levels that may disrupt normal operations, necessitating targeted interventions to mitigate potential risk contagion.

4.2. Baseline Regression Analysis

Prior to data analysis, variance inflation factors (VIF) were employed to assess the degree of multicollinearity among explanatory variables. The maximum VIF value was 2.73, well below the threshold of 10, indicating no significant multicollinearity in the model. To examine the relationship between corporate ESG performance and TFP, regression analysis was conducted based on the specified model; detailed results are presented in

Table 3. Baseline Regression Results.

	(1) Without Control Variables and Without Robust Standard Errors	(2) With Control Variables but Without Robust Standard Errors	(3) With Control Variables and with Robust Standard Errors
	$TFP\_lp$	$TFP\_lp$	$TFP\_lp$
$ESG\_a$	0.0527 ***	0.0440 ***	0.0440 ***
	(13.21)	(11.04)	(6.76)
$Ta$		0.000390 ***	0.000390
		(3.88)	(0.91)
$Age$		0.0758 ***	0.0758 ***
		(18.87)	(13.83)
$Shrcr10$		0.00355 ***	0.00355 ***
		(9.68)	(3.75)
$Np$		0.00225 ***	0.00225 ***
		(13.25)	(3.97)
$Roa$		0.00599 ***	0.00599
		(2.58)	(0.68)
$It$		0.0000386 ***	0.0000386 ***
		(3.73)	(5.74)
$Constant term$	7.597 ***	7.042 ***	7.042 ***
	(47.85)	(43.93)	(24.64)
$Year fixed effects$	YES	YES	YES
$Industry fixed effects$	YES	YES	YES
$Firm fixed effects$	YES	YES	YES
$Robust standard errors$	NO	NO	YES
$Observations$	25,232	25,232	25,232
$R^2$	0.172	0.186	0.299

Note: *** denote statistical significance at the 1% level; standard errors are reported in parentheses.

. Column (1) reports estimates without control variables, while controlling for industry, firm, and year fixed effects without robust standard errors. Columns (2) and (3) include control variables along with industry, firm, and year fixed effects, with Column (3) additionally applying robust standard errors. The regression results indicate a statistically significant positive relationship between corporate ESG performance and TFP at the 1% level. Specifically, a one-standard-deviation increase in ESG performance is associated with a 0.56% rise in TFP relative to its mean value (0.0440 × 1.067/8.323 × 100, where the independent variable’s standard deviation is 1.067 and the dependent variable’s mean is 8.323). This finding confirms the positive correlation between corporate ESG performance and TFP, thus supporting Hypothesis 1.

4.3. Robustness Tests

To ensure the robustness of our empirical findings, this study employs three methodological approaches to verify the reliability of the baseline regression results, as presented in

Table 4. Robustness Tests.

	(1) Alternative Dependent Variables		(2) Alternative Independent Variables	(3) Excluding of Extreme Values
	$TFP\_ols$	$TFP\_op$	$TFP\_lp$	$TFP\_lp$
$ESG\_a$	0.0540 ***	0.0250 ***		0.0427 ***
	(7.57)	(4.33)		(6.69)
$ESG\_p$			0.00633 ***
			(3.65)
$Constant term$	9.288 ***	5.564 ***	7.598 ***	7.061 ***
	(32.79)	(20.38)	(28.48)	(25.96)
$Control \mathrm{v}ariables$	YES	YES	YES	YES
$Year fixed effects$	YES	YES	YES	YES
$Industry fixed effects$	YES	YES	YES	YES
$Firm fixed effects$	YES	YES	YES	YES
$Observations$	25,232	25,232	8389	25,232
$R^2$	0.360	0.298	0.326	0.308

Note: *** denote statistical significance at the 1% level; standard errors are reported in parentheses.

: (1) Alternative dependent variables: Following Deng et al. [18], we recalculate TFP using both OLS and OP methodologies while maintaining all other variables unchanged; (2) Alternative independent variables: Bloomberg ESG scores are used to mitigate potential sample bias arising from relying solely on the Huazheng ESG scores. The variable symbol is designated as $ESG\_p$, while all other variables remain unchanged, and the regression is re-estimated; (3) Exclusion of extreme values: The dataset was winsorized at the 1% level to mitigate the influence of outliers on regression results. The regression results indicate a significant positive relationship between corporate ESG performance and TFP, and the findings remain robust to these sensitivity checks.

4.4. Endogeneity Tests

To address potential endogeneity due to reverse causality between corporate ESG performance and TFP, this study adopts two identification strategies: (1) Incorporating lagged variables: A one-period lag of ESG performance is included in the model to ensure that changes in ESG precede changes in TFP temporally, thereby mitigating reverse causality concerns; (2) Construction of instrumental variables: This study employs the industry-average ESG performance of other firms within the same industry and the number of ESG fund holdings as instrumental variables. Specifically, the ESG performance of peer firms can influence a given firm’s ESG performance through industry competition and imitation behaviors, satisfying the relevance condition. At the same time, the ESG performance of other firms within the industry is unlikely to affect the firm’s TFP, thus satisfying the exogeneity requirement [51]. Additionally, the number of ESG fund holdings can impact a firm’s ESG performance but does not directly influence its TFP, further meeting the relevance and exogeneity conditions. Therefore, these two variables are selected as instruments, and a two-stage least squares (2SLS) approach is employed for a more robust causal analysis. The results in

Table 5. Endogeneity Tests.

	(1) Lagged ESG (t − 1)	(2) 2SLS
	$TFP\_lp$	$ESG\_a$	$TFP\_lp$	$ESG\_a$	$TFP\_lp$
$L.ESG\_a$	0.0268 ***
	(6.33)
$M\_ESG\_a$		0.726 ***
		(37.09)
$Broad ESG Holdings$				5.06 × 10−10 ***
				(8.27)
$ESG\_a$			0.0302 *		0.806 ***
			(1.85)		(6.99)
$Constant term$	6.837 ***	1.092 ***	7.276 ***	4.347 ***	4.063 ***
	(36.79)	(3.96)	(41.99)	(16.13)	(7.21)
$Control \mathrm{v}ariables$	YES	YES	YES	YES	YES
$Year fixed effects$	YES	YES	YES	YES	YES
$Industry fixed effects$	YES	YES	YES	YES	YES
$Firm fixed effects$	YES	YES	YES	YES	YES
$Observations$	21,221	25,232	25,232	23,881	23,881

Note: * and *** denote statistical significance at the 10% and 1% levels, respectively; standard errors are reported in parentheses.

indicate that, whether using ESG performance lagged by one period or applying the instrumental variable approach, corporate ESG performance has a positive and significant effect on TFP. This confirms that the positive effect of ESG performance on TFP is not driven by reverse causality, passing the endogeneity test.

4.5. Heterogeneity Analysis

The characteristics of industry, ownership, and environmental risk determine firms’ managerial structures, capital requirements, environmental compliance costs, and market strategies. Accordingly, the impact of ESG performance on TFP differs across firms with heterogeneous attributes. Therefore, this study investigates how ESG performance affects TFP from these three key dimensions. The detailed results are reported in

Table 6. Heterogeneity Analysis.

	Industrial Classification			Ownership Type		Environmental Risk Characteristics
	Primary Sector	Secondary Sector	Tertiary Sector	SOEs	NSOEs	High Environmental Risk	Low Environmental Risk
$ESG\_a$	−0.0368	0.0429 ***	0.0522 ***	0.0497 **	0.0463 ***	0.0366 ***	0.0426 ***
	(−0.83)	(6.33)	(3.20)	(2.39)	(6.72)	(3.64)	(5.38)
$Constant term$	7.390 ***	8.044 ***	8.180 ***	6.757 ***	7.155 ***	7.831 ***	7.113 ***
	(21.07)	(23.51)	(26.68)	(16.88)	(24.65)	(20.95)	(25.92)
$Control \mathrm{v}ariables$	YES	YES	YES	YES	YES	YES	YES
$Year fixed effects$	YES	YES	YES	YES	YES	YES	YES
$Industry fixed effects$	YES	YES	YES	YES	YES	YES	YES
$Firm fixed effects$	YES	YES	YES	YES	YES	YES	YES
$Observations$	297	19,065	5870	2626	22,606	6960	18,272
$R^2$	0.259	0.333	0.174	0.389	0.300	0.320	0.301

Note: ** and *** denote statistical significance at the 5% and 1% levels, respectively; standard errors are reported in parentheses.

.

4.5.1. Heterogeneity Analysis by Industry Characteristics

The industrial sector to which a firm belongs not only shapes the type and extent of environmental and social challenges it faces, but also influences the complexity and focus of its governance structure. Accordingly, this study categorizes firms into primary, secondary, and tertiary industries to examine sectoral heterogeneity in the return on ESG investment. Detailed results are presented in Column (1) of Table 6. The findings indicate that ESG performance has no significant effect on TFP in the primary industry, whereas it exhibits a positive impact in both secondary and tertiary industries. The effect is particularly pronounced in the tertiary sector. This divergence may be attributed to several factors: First, the primary industry relies directly on natural resources, and its production activities inherently create tension with environmental protection, making improvements in ESG performance less likely to translate directly into productivity gains. For example, at Zijin Mining (Longyan, China), reclaiming a mine or constructing an advanced wastewater treatment system requires substantial capital expenditure. These investments do not increase the ore grade or ease the extraction process at the next mining site; rather, they serve as compensation for previously caused environmental damage or as costs necessary to obtain mining rights. Due to the direct link between the primary industry and natural resource development, the economic benefits of ESG improvements in this sector primarily manifest in risk avoidance and value preservation, rather than efficiency enhancement or value creation.

Second, the secondary industry, which encompasses manufacturing and processing, derives efficiency gains from technological progress, process optimization, and resource allocation, directly affecting the “technical efficiency” component of the production function and thus exerting a measurable positive impact on TFP. For instance, CATL (Ningde, China), a new energy battery manufacturing company, has committed to building “Lighthouse” and “zero-carbon” factories, extensively applying artificial intelligence, big data, and Internet of Things technologies to optimize the entire battery production process. The digitization and intelligent transformation of production processes significantly improve product yield and overall equipment efficiency, reduce waste and energy consumption, and consequently enhance TFP.

Finally, the tertiary industry, which provides services, relies heavily on intangible assets. For example, Tencent (Shenzhen, China), as a representative of the tertiary sector, consistently ranks among the top firms in international ESG ratings. The company implements ESG principles by leveraging technology to promote energy conservation and emissions reduction, offering digital inclusive finance services, and continuously improving its data security and privacy protection systems. Its core product, WeChat (Version 8.0.63), builds a super-platform through its “social” functionalities (social networking) and “governance” capabilities (payments and mini-program ecosystem). Tencent’s digital inclusive finance initiatives attract a vast number of users and merchants, creating strong network effects that substantially reduce customer acquisition costs and transaction costs within the ecosystem, thereby driving extreme improvements in scale efficiency. At the same time, its exemplary corporate social responsibility profile and sound corporate governance make it a magnet for top talent. High-skilled personnel, in turn, drive continuous product and technological innovation, directly enhancing the productivity of labor and capital inputs.

4.5.2. Heterogeneity Analysis by Ownership Type

SOEs and non-SOEs differ significantly in terms of governance structure, decision-making mechanisms, social responsibilities, and market positions. Accordingly, the impact of ESG performance on TFP may vary by ownership type. This study categorizes firms into SOEs and non-SOEs to examine these differential effects. Detailed results are presented in Column (2) of Table 6. The results indicate that ESG performance positively affects TFP for both non-SOEs and SOEs, with the enhancement effect being more pronounced for SOEs. This difference may stem from the fact that SOEs are generally monopolistic, with higher market shares and greater financial resources that enable them to implement optimal ESG strategies, thereby effectively realizing the economic benefits of ESG practices. In addition, SOEs often bear greater social responsibilities, making their ESG practices more likely to gain recognition and support from stakeholders, which facilitates the translation of ESG initiatives into TFP improvements. For instance, during its ESG implementation process, China Baowu Steel Group Co., Ltd. (Shanghai, China), as an SOE, has secured substantial low-cost financing from banks due to its ownership structure. Additionally, its dominant market position has facilitated close collaborations with leading research institutes and universities, accelerating the pace of technological innovation and significantly enhancing resource utilization efficiency—thereby contributing to the improvement of its TFP.

4.5.3. Heterogeneity Analysis by Environmental Risk Exposure

A firm’s environmental risk profile significantly affects its environmental compliance costs, public image, financing capacity, and policy support. Consequently, the influence of ESG performance on TFP may vary depending on this profile. Based on this premise, the sample is divided into two subgroups according to whether firms belong to heavily polluting industries. Results in Column (3) of Table 6 show that firms with low environmental risk exhibit a stronger positive effect of ESG performance on TFP. This may be because such enterprises face lower environmental regulatory hurdles and compliance costs, enjoy better public perception and reputation, and thus benefit from easier access to financing, reduced operational costs, enhanced market competitiveness, and greater policy support when improving their ESG performance. Taking Conch Cement (Wuhu, China; high-risk) and WuXi AppTec (Wuxi, China; low-risk) as examples, both firms implement ESG practices but adopt different approaches. Conch Cement has retrofitted all its production lines for ultra-low emissions, constructed a waste-heat power generation system, and promoted alternative fuels. In contrast, WuXi AppTec has focused on enhancing employee incentives and increasing R&D investment. Consequently, Conch Cement affects TFP indirectly by reducing purchased electricity costs through waste-heat power generation, whereas WuXi AppTec influences TFP directly by attracting top global scientific talent and driving technological iteration through high R&D investment. Thus, low-risk firms can free ESG resources from costly, defensive end-of-pipe measures and allocate them precisely and intensively toward enhancing human capital and strengthening innovation governance. These areas are highly aligned with the core drivers of TFP—technological progress and resource allocation efficiency—resulting in more direct and pronounced value-creation effects.

4.6. Mechanism Analysis

To investigate the underlying mechanisms through which corporate ESG performance affects TFP, this study employs Models (4) and (5) to empirically test the mediating roles of financing constraints, human capital, and technological innovation.

$$Middl{e}_{it}={\alpha }_1+{\beta }_{1}ESG\_a_{it}+{\gamma }_{1}contro{l}_{it}+{\delta }_i+{\lambda }_i+u_t+{\epsilon }_{it}$$

(4)

$$TFP\_l{p}_{it}={\alpha }_2+{\beta }_{2}ESG\_a_{it}+{\omega }_{2}Middl{e}_{it}+{\gamma }_{2}contro{l}_{it}+{\delta }_i+{\lambda }_i+u_t+{\epsilon }_{it}$$

(5)

Here, $Middl{e}_{it}$ denotes $K{Z}_{it}$, $lnug{e}_{it}$, and $lnpaten{t}_{it}$.

The mediation test results are presented in

Table 7. Mechanism Analysis of Corporate ESG Performance Impact on TFP.

	(1) Capital Factors		(2) Labor Factors		(3) Technological Factors
	$KZ$	$TFP\_lp$	$lnuge$	$TFP\_lp$	$lnpatent$	$TFP\_lp$
$ESG\_a$	−0.226 ***	0.0409 ***	0.0707 ***	0.0178 ***	0.0863 ***	0.0374 ***
	(−9.92)	(6.36)	(9.65)	(3.04)	(8.06)	(5.84)
$KZ$		−0.0137 ***
		(−4.20)
$lnuge$				0.370 ***
				(22.07)
$lnpatent$						0.0765 ***
						(12.19)
$Constant term$	6.465 ***	7.131 ***	4.101 ***	5.526 ***	0.0855 ***	0.0383 ***
	(7.34)	(24.23)	(11.81)	(27.37)	(8.01)	(5.99)
$Control \mathrm{v}ariables$	YES	YES	YES	YES	YES	YES
$Year fixed effects$	YES	YES	YES	YES	YES	YES
$Industry fixed effects$	YES	YES	YES	YES	YES	YES
$Firm fixed effects$	YES	YES	YES	YES	YES	YES
$Observations$	25,232	25,232	25,232	25,232	25,232	25,232
$R^2$	0.142	0.302	0.318	0.412	0.225	0.314

Note: *** denote statistical significance at the 1% level; standard errors are reported in parentheses.

. The findings indicate that through the financing constraints channel, a one-standard-deviation increase in corporate ESG performance leads to a 0.68% rise in TFP relative to its mean value [(−0.227 × −0.0137 + 0.0409) × 1.067/8.323 × 100], with an indirect effect of 0.04%. This suggests that improved ESG performance effectively alleviates financing constraints, thereby indirectly enhancing TFP, which provides empirical support for Hypothesis 2(a). Through the human capital channel, a one-standard-deviation improvement in ESG performance results in a 0.56% increase in TFP relative to its mean, with a notably larger indirect effect of 0.34%. This implies that enhanced ESG performance positively influences labor factors (human capital) and indirectly promotes TFP, confirming Hypothesis 2(b). Through the technological innovation channel, a one-standard-deviation increase in ESG performance corresponds to a 0.56% improvement in TFP relative to its mean, with an indirect effect of 0.08%. This demonstrates that strengthened ESG performance facilitates technological factors (innovation) and indirectly boosts TFP, thereby validating Hypothesis 2(c). Notably, the stronger indirect effect observed through the human capital channel may be attributed to its more direct transmission mechanism. ESG investments—such as improving employee welfare, providing training, fostering safe and inclusive workplaces, and fulfilling social responsibilities—directly enhance the quality of human capital with relatively immediate and intrinsic effects. In contrast, the financing and innovation pathways involve multiple intermediate steps (e.g., capital acquisition, R&D, application), each introducing inefficiencies and uncertainties, thereby reducing the efficiency of indirect effects.

In summary, improving ESG performance not only alleviates financing constraints but also strengthens human capital and stimulates technological innovation, collectively contributing to higher TFP. The following case illustrates this point more clearly. LONGi Green Energy (Xi’an, China), a photovoltaic company, was considered a “high-energy-consumption, high-cost” manufacturer before 2015 and heavily relied on debt financing. After 2015, the company explicitly adopted the zero-carbon development concept of “Solar for Solar” and became the first solar technology company in the world to join RE100, committing to 100% renewable energy use. By thoroughly implementing ESG principles, LONGi Green Energy substantially alleviated its financing constraints, with funding increasing from RMB 2.95 billion in 2015 to over RMB 20 billion in 2022. Additionally, improvements in management capabilities facilitated the accumulation of human capital, with the number of R&D personnel growing from over 500 in 2015 to more than 4000 in 2022. R&D investment also surged from RMB 299 million in 2015 to RMB 7.141 billion in 2022. Supported by enhanced talent attraction and innovation capacity, LONGi repeatedly broke world records in crystalline silicon (c-Si) solar cell conversion efficiency. Its monocrystalline silicon wafer production capacity expanded from approximately 5 GW in 2015 to 150 GW in 2022, while non-silicon costs steadily declined. As a result, both gross margin and return on equity (ROE) consistently exceeded those of industry competitors, greatly improving resource utilization efficiency.

5. Extended Analysis

5.1. Moderating Effect of $EU$

We employ Model (6) to examine the moderating role of $EU$ in the relationship between corporate ESG performance and TFP.

$$TFP\_l{p}_{it}={\alpha }_3+{\beta }_{3}ESG\_a_{it}+{\theta }_{3}E{U}_{it}+{\vartheta }_{3}ESG\_a_{it}\times E{U}_{it}+{\gamma }_{3}contro{l}_{it}+{\delta }_i+{\lambda }_i+u_t+{\epsilon }_{it}$$

(6)

To examine the role of $EU$ in the relationship between corporate ESG performance and TFP, the variables were mean-centered and analyzed via regression based on the specified model. Results are presented in

Table 8. Moderating Effect of $EU$.

	(1)	(2)
	$TFP\_lp$	$TFP\_lp$
$ESG\_a$	0.0440 ***	0.0472 ***
	(6.76)	(7.34)
$EU$		0.127 ***
		(6.21)
$ESG\_a\times EU$		0.0322 ***
		(2.93)
$Constant term$	7.042 ***	6.983 ***
	(24.64)	(24.37)
$Control \mathrm{v}ariables$	YES	YES
$Year fixed effects$	YES	YES
$Industry fixed effects$	YES	YES
$Firm fixed effects$	YES	YES
$Observations$	25,232	25,232
$R^2$	0.299	0.305

Note: *** denote statistical significance at the 1% level; standard errors are reported in parentheses.

. The interaction term between $EU$ and ESG performance shows a positive coefficient significant at the 1% level, indicating that $EU$ strengthens the positive effect of ESG on TFP. This may be because firms under $EU$ strive to enhance their ESG performance to mitigate risks, comply with regulations, and meet societal expectations. Such efforts may include adopting greener production methods, improving waste management, and strengthening stakeholder engagement. By improving ESG performance, firms can better differentiate themselves in volatile conditions, thereby increasing TFP. Thus, Hypothesis 3 is supported.

5.2. Mechanism Analysis of $EU$’s Moderating Effect

Tests on the moderating role of $EU$ reveal that it positively enhances the effect of corporate ESG performance on TFP. Furthermore, $EU$ may not only moderate key mediating variables—capital, labor, and technology—but also influence their individual impacts on TFP, thereby indirectly moderating the overall ESG-TFP relationship. To examine this mechanism, a moderated mediation analysis was conducted as specified below:

$$Middl{e}_{it}={\alpha }_4+{\beta }_{4}ESG\_a_{it}+{\vartheta }_{4}E{U}_{it}\times ESG\_a_{it}+{\gamma }_{4}contro{l}_{it}+{\delta }_i+{\lambda }_i+u_t+{\varphi }_{it}$$

(7)

$$TFP\_l{p}_{it}={\alpha }_5+{\beta }_{5}ESG\_a_{it}+{\theta }_{5}E{U}_{it}+{\omega }_{5}Middl{e}_{it}+{\vartheta }_{5}E{U}_{it}\times ESG\_a_{it}+{\xi }_{5}E{U}_{it}\times Middl{e}_{it}+{\gamma }_{5}contro{l}_{it}+{\delta }_i+{\lambda }_i+u_t+{\psi }_{it}$$

(8)

$$TFP\_l{p}_{it}={\alpha }_6+{\beta }_{6}ESG\_a_{it}+{\theta }_{6}E{U}_{it}+{\omega }_{6}Middl{e}_{it}+{\xi }_{6}E{U}_{it}\times Middl{e}_{it}+{\gamma }_{6}contro{l}_{it}+{\delta }_i+{\lambda }_i+u_t+{\psi }_{it}$$

(9)

Here, the parameters carry the same meanings as defined above. By combining Model (7) and Model (8), the indirect effect of corporate ESG performance on TFP can be expressed as ${\omega }_5({\beta }_4+{\vartheta }_{4}E{U}_{it})$. Similarly, integrating Model (4) and Model (9) reveals that the indirect effect of ESG performance on TFP is represented by ${\beta }_1({\omega }_6+{\xi }_{6}E{U}_{it})$.

The moderating mechanism of environmental uncertainty on the positive impact of corporate ESG performance on TFP was empirically tested, with detailed results presented in

Table 9. Tests of $EU$’s Moderating Mechanisms on Factor Channels.

	(1) Financial Constraints			(2) Human Capital			(3) Technological Innovation
	$KZ$	$KZ$	$TFP\_lp$	$lnuge$	$lnuge$	$TFP\_lp$	$lnpatent$	$lnpatent$	$TFP\_lp$
$ESG\_a$	−0.226 ***	−0.217 ***	0.0452 ***	0.0707 ***	0.0716 ***	0.0212 ***	0.0863 ***	0.0874 ***	0.0427 ***
	(−9.92)	(−9.83)	(7.06)	(9.65)	(9.86)	(3.59)	(8.06)	(8.21)	(6.67)
$EU$		0.0917	0.108 ***		0.137 ***	0.0661 ***		0.0443 *	0.120 ***
		(1.61)	(5.86)		(6.39)	(3.89)		(1.67)	(6.19)
$ESG\_a\ast EU$		−0.0471			0.00126			0.0120
		(−1.14)			(0.65)			(0.88)
$KZ$			−0.0121 ***
			(−3.85)
$lnuge$						0.360 ***
						(21.68)
$lnpatent$									0.0734 ***
									(12.10)
$KZ\ast EU$			−0.0171 ***
			(−3.67)
$lnuge\ast EU$						0.0301 ***
						(2.94)
$lnpatent\ast EU$									0.0456 ***
									(4.99)
$Constant term$	6.465 ***	6.397 ***	7.085 ***	4.101 ***	4.048 ***	5.545 ***	0.347	0.327	6.986 ***
	(7.34)	(7.19)	(23.96)	(11.81)	(11.70)	(26.56)	(0.86)	(0.80)	(23.05)
$Control \mathrm{v}ariables$	YES	YES	YES	YES	YES	YES	YES	YES	YES
$Year fixed effects$	YES	YES	YES	YES	YES	YES	YES	YES	YES
$Industry fixed effects$	YES	YES	YES	YES	YES	YES	YES	YES	YES
$Firm fixed effects$	YES	YES	YES	YES	YES	YES	YES	YES	YES
$Observations$	25,232	25,232	25,232	25,232	25,232	25,232	25,232	25,232	25,232
$R^2$	0.142	0.143	0.309	0.318	0.324	0.415	0.225	0.225	0.323

Note: * and *** denote statistical significance at the 10% and 1% levels, respectively; standard errors are reported in parentheses.

. Column (1) shows that environmental uncertainty exacerbates the constraining effect of financing constraints on TFP. This suggests that under high environmental uncertainty, the mitigating effect of ESG performance on financing constraints—and thereby its positive influence on TFP—is further amplified. Furthermore, results in columns (2) and (3) indicate that environmental uncertainty strengthens the positive contributions of human capital and technological innovation to TFP. Therefore, in contexts of increasing environmental uncertainty, improvements in corporate ESG performance can alleviate financing constraints, enhance human capital, and promote technological innovation. These mediating factors—reduced financing constraints, upgraded human capital, and advanced innovation—are in turn further amplified in their positive effects on TFP, thereby magnifying the overall beneficial impact of ESG performance on TFP.

6. Conclusions and Policy Implications

6.1. Conclusions

The emergence of ESG standards has provided a viable pathway for enterprises to achieve economic development alongside environmental protection. However, in the increasingly complex global business environment, rising uncertainties may encourage more short-term-oriented managerial behaviors, thereby dampening motivation for enhancing ESG performance. As the largest developing country, China has introduced a series of ESG policies and established a structured ESG framework, which has facilitated its transition from extensive growth to a sustainable development model within just two decades. Investigating and clarifying the role of ESG principles in promoting economic growth and their implementation mechanisms holds significant referential value for the global sustainability agenda. Therefore, using a sample of Chinese A-share listed companies from 2011 to 2022, this study examines the impact of corporate ESG performance on TFP under $EU$, explores the underlying mechanisms, and investigates the moderating role of $EU$. The main findings are as follows:

(1)

Corporate ESG performance exerts a significant positive effect on TFP, a finding that remains robust after controlling for endogeneity and conducting rigorous sensitivity tests. This indicates that ESG practices not only fulfill ethical and social responsibilities but also generate substantive economic benefits. The effect is particularly pronounced in the tertiary sector, SOEs, and firms with lower environmental risk.

(2)

ESG performance enhances TFP indirectly through three primary channels: capital, labor, and technology. Specifically, improved ESG performance helps alleviate financing constraints, enhance human capital, and stimulate innovation, thereby contributing to TFP growth.

(3)

$EU$ can positively moderate the positive impact of corporate ESG performance on TFP. Mechanism tests reveal that environmental uncertainty exacerbates the negative effect of financing constraints on TFP, while enhancing the positive effects of human capital and technological innovation on TFP, thereby indirectly strengthening the overall positive influence of ESG performance on TFP.

6.2. Implications

Based on the research findings, the following targeted recommendations are proposed:

(1)

Establishing a Cross-Industry ESG Practice Sharing Platform. To address the widespread challenges in ESG practices such as information barriers, redundant resource investment, and fragmented standards, internationally recognized industry associations and major standard-setting bodies (e.g., GRI, SASB, ISSB) should jointly take the lead in building a global, cross-industry ESG practice sharing platform. This platform should not merely serve as a website for information release, but rather evolve into a dynamic and collaborative innovation ecosystem. On one hand, it can collect and curate validated success cases from various industries worldwide. Each case will be deconstructed using a standardized template, clearly presenting its application background, concrete initiatives, resource inputs, challenges overcome, quantified benefits, and a return on investment (ROI) analysis. On the other hand, the platform can regularly publish common ESG-related technical bottlenecks across industries, and support targeted studies addressing real-world pain points—such as “the high cost of ESG implementation for SMEs” and “the difficulty of balancing short-term economic benefits with long-term sustainability goals.” By leveraging resource sharing and risk-sharing mechanisms, the platform can assist enterprises, particularly resource-constrained SMEs, in tackling the challenges of sustainable transformation.

(2)

Developing Differentiated Strategies. At present, enterprises of different industries and scales face heterogeneous challenges in advancing ESG strategies due to variations in resource endowment and risk-bearing capacity. These challenges include short-term cost pressures, technological renewal risks, and talent capability gaps. For enterprises in the primary sector, ecological restoration should be integrated into full life-cycle management, while exploring new development models that create a circular economy. At the same time, technological innovation should be leveraged to transform “costs” into “capital.” For instance, in the case of Zijin Mining, advanced wastewater treatment systems should go beyond compliance discharge standards and instead focus on water reuse and the recovery of valuable elements, thereby reducing production costs and achieving resource recycling. For enterprises in the secondary or tertiary sectors, it is necessary to establish robust risk management systems to address emerging risks such as cybersecurity threats, data leakage, and algorithmic failures. In addition, efforts should be made to improve yield rates and overall equipment efficiency, thereby reducing defective products and energy waste. ESG-related general knowledge and specialized skills training should also be provided to ensure that all employees understand the company’s ESG philosophy and its relevance to their individual work. For low-environmental-risk enterprises and SOEs, ESG should be fully integrated into the corporate vision, values, and long-term business strategies, with explicit articulation of ESG principles, priorities, and commitments. At the same time, ESG information should be included in routine disclosure, and information disclosure systems should be continuously improved. For high-environmental-risk enterprises and NSOEs, ESG performance can be embedded into supplier access criteria and performance evaluation systems to promote upstream joint emission reduction. Moreover, these enterprises can apply for green credit and issue SLBs, thereby linking financing costs with improvements in ESG performance to secure financial support and alleviate cost pressures. Finally, the government should act as a “precise facilitator” by designing a multi-level, differentiated policy toolbox that ensures all types of enterprises are “willing, capable, and adept” in fulfilling their ESG responsibilities, thereby achieving comprehensive improvements in TFP.

(3)

Enhancing ESG Management and Resilience Capacity. Research indicates that ESG performance exerts a significant positive impact on TFP, and that when firms fully leverage environmental uncertainty, this uncertainty can positively moderate the relationship between ESG performance and TFP. However, corporate ESG transformation is not an overnight process but rather a strategic investment. In the face of environmental uncertainty, systematic ESG planning and management can help firms transform short-term cost pressures into dynamic adaptive capabilities for coping with long-term uncertainties, thereby fostering sustainable competitiveness. First, firms should conduct a comprehensive “ESG materiality assessment” to identify ESG issues most closely related to their core business and those with the greatest long-term impact, prioritizing investment in these areas. This ensures that resources are concentrated in fields capable of creating the highest commercial and social value, alleviating the problem of strategic dispersion. Second, firms should adopt a phased investment approach by formulating a clear roadmap. They may begin with “low-cost, high-visibility” initiatives (e.g., office energy efficiency retrofits, employee volunteer programs) to quickly achieve results, build experience, and strengthen confidence, before gradually advancing to projects that require substantial investments. Finally, firms should enhance the capacity of existing financial, operational, and legal teams through in-service training, upgrading them into interdisciplinary talents proficient in both business and ESG. Compared with building new teams from scratch, this approach is more cost-effective and less resistant to implementation.

6.3. Limitations

This study uses Chinese A-share listed firms from 2011 to 2022 as the sample to empirically examine the impact of corporate ESG performance on TFP, as well as the role and mechanisms of $EU$. The study not only aims to provide empirical evidence to support the promotion and effective implementation of ESG principles in developing countries, but also offers policy insights for developed countries in addressing global $EU$ and advancing corporate green transformation. Although this research is based on Chinese data and case studies of Chinese firms, the findings are particularly relevant for emerging economies that are at a similar stage of development and face comparable institutional transitions and market conditions. However, given differences in policy frameworks, market mechanisms, and stages of development across countries, the specific impact of ESG on TFP under $EU$ should be assessed in the context of each country’s national conditions. To further enhance the generalizability and international relevance of the findings, future research will expand the sample to include other emerging markets in Asia and countries along the Belt and Road Initiative, conducting cross-economy comparative analyses to build a more general theoretical framework and provide broader and more robust empirical evidence for global sustainable development governance.