Does China's national carbon market play a role? Evidence from corporate ESG performance

Abstract

As a critical step towards carbon peaking and carbon neutrality, China's newly operating national carbon emission trading market has been given high expectations. To assess the operation effect of this policy, this paper employs the difference-in-differences (DID) model to investigate the influence of national carbon market on corporate environmental, social and governance (ESG) performance. The corresponding results indicate that the operation of the national carbon market significantly improves ESG performance of participating firms. The potential mechanism is that the establishment of this market significantly suppresses management myopia and alleviates financing constraints for enterprises. Besides, the above impact is more prominent for state-owned enterprises and enterprises located in areas with no experience in carbon pilots and low levels of marketization. Further evidence suggests that the effect of the national carbon market is mainly reflected in the environmental and social dimensions, and this role will strengthen with the activity of carbon emission trading.