The Impact of Digital Transformation on ESG Performance Based on the Mediating Effect of Dynamic Capabilities

Abstract

The United Nations Development Summit in 2015 adopted the “2030 Agenda for Sustainable Development”, establishing a framework for Sustainable Development Goals (SDGs) with the aim of achieving coordinated economic, social, and ecological development worldwide by 2030. The “environmental, social, and governance” (ESG) approach is important within the concept of SDGs and is the subject of increasing attention from scholars. Despite China’s significant contributions to the SDGs, it still faces numerous challenges in terms of environmental and governance development. With the ongoing development of digital technology, many Chinese enterprises aspire to harness the dividends of digital transformation in order to achieve SDGs. In this study, we aim to help companies understand how they can improve their ESG performance through digital transformation. We use a sample of A-share listed companies in China from 2011 to 2020 to construct a digital transformation index by profiling the frequency of digital-related words in companies’ annual reports using textual analysis. Furthermore, we empirically examine the direct effect of digital transformation on companies’ level of ESG disclosure and explore the mediating effect of dynamic capabilities on the impact of digital transformation on ESG performance. Empirical testing reveals that digital transformation indeed has a positive impact on enterprises’ ESG performance, and digital technology innovation can enhance ESG performance through dynamic capabilities such as green innovation, social responsibility, and operational management. The findings indicate that companies need to actively develop and promote digital technologies to obtain the benefits of digital transformation, with company executives including advanced technology in their decision-making and operational processes in an effort to promote innovation and management efficiency, thereby improving their ESG performance.

Digitalization, Spillover and Environmental, Social, and Governance Performance: Evidence From China

“…Digital transformation provides companies with more efficient data collection, storage, and analysis technologies that can be used to help them better monitor their environmental impacts, address the fragmentation of environmental data, and improve their ESG performance (Wang & Esperança, 2023). Digital transformation can bring about changes and optimization in organizational structure, internal management, and other governance aspects within the enterprise, so that it can have more dynamic capabilities, helping it to improve ESG performance (Su et al, 2023). A study based on the European Union shows that a 1% increase in digital inclusion results in a minimal .001% increase in the ESG performance (Kwilinski et al, 2023).…”

The impact of digital transformation and earnings management on ESG performance: evidence from Chinese listed enterprises

“…Ren et al 25 have found that digital finance can influence corporate ESG performance through green innovation and external regulation. Su et al 26 take Chinese A-share listed companies from 2011 to 2020 as samples and believe that DT has a positive impact on ESG performance, while dynamic capability plays a positive intermediary role. Wu and Li 27 also adopted a multiple linear regression model to discuss the positive impact of DT on ESG performance and affirm the positive effects of green innovation.…”

Impact of Digital Transformation on ESG Management and Corporate Performance: Focusing on the Empirical Comparison between Korea and China

“…DT contributes significantly to reducing pollutant emissions and protecting the environment, enabling existing problems to be solved in a more ecofriendly manner [42]. DT can support ESG innovation by standardizing and modularizing corporate resources and processes to reduce costs and improve business models [43]. The following research hypotheses were derived based on these preceding studies.…”