Artificial intelligence and corporate ESG performance

Abstract

The rapid advancement of artificial intelligence (AI) and increasing emphasis on corporate sustainability have sparked interest in their potential relationship. This study examines the influence of AI adoption on Environmental, Social, and Governance (ESG) performance in Chinese firms, investigating both direct effects and the mediating role of absorptive capability. Our two-way fixed effects models reveal that AI adoption significantly enhances environmental and social performance, while showing limited impact on governance aspects. The analysis demonstrates that absorptive capability partially mediates this relationship, suggesting AI enhances ESG performance both directly and indirectly by improving firms' ability to assimilate and apply sustainability knowledge. Heterogeneity analyses indicate that AI's sustainability benefits vary across organizational life cycles, with mature firms showing strongest effects, and across industry types, with non-polluting sectors demonstrating greater improvements. These findings remain robust to various endogeneity tests, including propensity score matching and Heckman correction procedures. Our study contributes to the growing literature on technology and sustainability by providing empirical evidence of AI's differential effects across ESG dimensions and identifying important boundary conditions for its effectiveness in enhancing corporate sustainability in emerging economies.