Striving for sustainable development: Green financial policy, institutional investors, and corporate ESG performance

Abstract

Environmental, social, and governance (ESG) practices play an increasingly important role in achieving sustainable development goals. Drawing on institutional theory, this paper empirically explores whether and how green financial policy affects corporate ESG performance. Taking China's pilot policy for green finance reform and innovation (GFP) as a quasi‐natural experiment, we employ the difference‐in‐differences model to investigate the causal relationship between green financial policy and corporate ESG performance. We find that the GFP significantly improves corporate ESG performance. The results are robust to a series of checks such as parallel trend examination, placebo test, mitigation of omitted variable bias, alternative variables, and the exclusion of contemporaneous policies. The heterogeneity analysis shows that the positive impact of GFP on corporate ESG performance is more pronounced for firms with tighter financial constraints, higher agency costs, and more external pressures. On this basis, we further document that the positive impact of GFP on corporate ESG performance is more pronounced for investee firms with more institutional ownership. The above findings indicate that the formal institution of government‐led green financial policy can positively affect corporate ESG performance, and market participants‐institutional investors help to strengthen this policy effect. Overall, our study sheds light on the significant role of green financial policy in promoting corporate sustainability.

The Impacts of External Sustainability: Institutional Investors’ Sustainable Identity, Corporate Environmental Responsibility, and Green Innovation

“…Despite being consistent with the results of Refs. [20,26,27] on the relationship between institutional investors and green innovation, our study differs from these studies in the following ways: (1) Ref. [20] focuses on the influencing effect of institutional investors' portfolios on green innovation, while this paper is based on institutional investor's green identity, drawing upon the insights of Ref.…”

“…(2) Both Refs. [26,27] examine institutional investor's effects on corporate social responsibility or ESG performance, while our work is interested in its effects on green innovation.…”

Vendor sustainability performance and corporate customers' supplier selection

“…In this study, followingChen et al (2021), we use the term "vendor" to refer to a potential supplier, and we use the term "supplier" to refer to an actual supplier selected by a customer firm, while the term "non-supplier vendor" is used to refer to a potential supplier that is not selected as an actual supplier.2It is well documented that macroeconomic conditions(Bansal et al, 2015;Ramya & Baral, 2021), industry and regional factors(Flammer, 2015;Lei & Yu, 2024), firm attributes(Drempetic et al, 2020;Yang & Han, 2023), and executive characteristics(Chin et al, 2013;Zhang et al, 2020) can affect CSR engagement and corporate sustainability performance.3The framework of SSCM has been extensively discussed in prior studies(Ahi & Searcy, 2013;Carter & Rogers, 2008;Pagell & Wu, 2009;Seuring & Müller, 2008), andHassini et al (2012) defined SSCM as "the management of supply chain operations, resources, information, and funds in order to maximize the supply chain profitability while at the same time minimizing the environmental impacts and maximizing the social well-being".…”

ESG controversies and corporate performance: The moderating effect of governance mechanisms and ESG practices

“…Investors are increasingly drawn to companies demonstrating proactive and substantial commitments to ESG principles while expressing skepticism toward those neglecting these considerations as potential signals of unsustainability and heightened risks (Aguilera et al, 2007;Useche et al, 2024;Vargas-Santander et al, 2023). However, the discourse concerning the direct and indirect impacts of ESG on financial performance remains characterized by divergent findings and perspectives (Fiandrino et al, 2019;Gallego-Álvarez & Pucheta-Martínez, 2022;Hassan et al, 2021;Issa, 2023;Karwowski & Raulinajtys-Grzybek, 2021;Kazemi et al, 2023;Khatib et al, 2021;Li et al, 2019;Lei & Yu, 2024).…”