Impact of the National Ecological Civilization Construction Demonstration Zone on corporate ESG: Evidence from China

Abstract

This study examines the effect of implementation of the National Ecological Civilization Construction Demonstration Zone (NECCDZ) policy in China as a quasi-natural experiment on Chinese listed firms’ ESG performance. By utilizing a multi-period differences-in-differences model, the empirical results reveal that the NECCDZ policy boosted the ESG performance of China’s A-share listed companies in the pilot region by an average of 38%. However, the NECCDZ policy has differential effects on the three subdimensions of ESG. More specifically, the NECCDZ policy significantly improves the social responsibility performance and governance performance of the company, and has a lagged positive effect on the environmental performance. The mechanism analysis shows that the NECCDZ policy enhances corporate ESG practices by promoting enterprise green technology innovation, while media attention positively moderates the impact of the NECCDZ policy on corporate ESG practices. Further analysis shows that the NECCDZ policy also improves the enterprises’ financing environment through government subsidies and public investment. Overall, the empirical findings show the effectiveness of NECCDZ policy in enhancing ESG practices at the enterprise level and offer a new approach to improving corporate ESG finance in emerging markets such as China.