ESG disclosure and corporate human capital upgrading in China

Abstract

ESG has become a pivotal factor in advancing corporate sustainability, yet its impact on corporate human capital, particularly in emerging markets, remains underexplored. This study leverages the inaugural release of ESG ratings for Chinese listed companies by a third-party agency, employing a difference-in-differences approach to examine the effects of market-driven ESG disclosure. Analysis of firm-level panel data from 2011 to 2021 reveals that ESG disclosure leads to a 5.3% increase in high-skilled employees relative to low-skilled employees. This shift is driven by stock price pressures encouraging firms to adjust employment strategies, strengthen governance, and invest in technology. The effects are especially pronounced in state-owned enterprises, financially stable firms, and technology-intensive industries. These findings highlight the effectiveness of market-driven ESG disclosure in emerging markets and offer actionable insights for policymakers to foster voluntary ESG disclosure systems and guide firms in leveraging human capital investments for sustainable development.