Does ESG investment reduce carbon emissions in China?

Abstract

This study explores the relationship between ESG investments and carbon emissions in China. Our results show that 1% increase in environmental investments would cause 0.246% decrease in CO2 emissions and 0.558% decrease in carbon emission intensity. The impact of ESG investment is heterogeneous across the developed and underdeveloped regions. Environmental investments in the advanced eastern region have significantly improved carbon productivity. In contrast, environmental investments in the central and western regions significantly reduced carbon emissions, but they have little impact on carbon productivity.

Carbon reduction effect of ESG: empirical evidence from listed manufacturing companies in China

“…When benchmarking these findings against comparable literature, several similarities and differences emerge. Studies such as Cong et al (2022) and Lee et al (2022) have also observed a negative relationship between ESG performance and carbon emission intensity. Cong et al reported a slightly lower effect size (1.5% decrease in emissions per ESG rating increase), potentially due to their sample including companies from a broader range of sectors with varying ESG maturity levels.…”

“…Secondly, based on agency theory, there might be a conflict of interest between managers and shareholders, especially concerning carbon emissions and environmental protection investments. However, when a company implements robust ESG measures, it can serve as a mechanism to ensure the long-term commitment of managers to environmental and social issues, thereby reducing carbon emissions (Cong et al, 2022). Additionally, for large enterprises operating globally, the international pressures and expectations they face make ESG performance especially crucial.…”

“…Most relevant to the research theme is how sustainable or green development affects corporate carbon emissions. However, most literature typically discusses the impact of green development on carbon emissions indirectly from a macro perspective, such as from the angle of environmental regulatory policies (Chen, 2022;Cong et al, 2022;Cahyono et al, 2023;Deng et al, 2023). Unlike the aforementioned literature, this paper directly analyzes the impact of corporate ESG performance on their carbon reduction behaviors from a micro perspective.…”

“…When a company emits excessive carbon or lacks action in reduction, a low ESG rating quickly sends a negative signal to the market. Such transparency can prompt investors, consumers, and other stakeholders to reassess their relationships with that company and might attract public attention and criticism (Cong et al, 2022;Ge et al, 2022;Pan et al, 2022). In conclusion, ESG performance, through both market incentives and stakeholder supervision mechanisms, effectively drive companies to take proactive measures for carbon reduction, thereby enhancing the long-term sustainability and competitiveness of companies.…”

The Determinants of CO2 Emissions in the Context of ESG Models at World Level

“…Big corporations can use greenwashing to have higher ESG scores even without reducing COE [20]. The increase in 1% of investment in the E component of the ESG model reduces COE of 0,246% in China [21]. Universities that reduces the level of COE in the application of the ESG model tend to have more students [22].…”