Green Horizons Beyond Borders: The Impact of Capital Market Globalization on ESG Performance Via A-Shares' MSCI Inclusion

Abstract

In the context of economic globalization, the impact of capital market internationalization on sustainable enterprise development has attracted considerable attention. The inclusion of Chinese A-shares in the Morgan Stanley Capital International (MSCI) index has a significant impact on environmental, social, and governance (ESG) performance; however, research on this topic is relatively scarce. This study investigates the impact of capital market internationalization on the ESG performance of listed companies by analyzing data from 2015 to 2020 using a difference-in-differences approach. We find significant improvements in ESG performance post-inclusion, especially for environmental protection and social responsibility. The analysis identifies three mechanisms driving these enhancements: enhanced ESG performance in firms with overseas investors and operations, reduced information asymmetry and increased transparency from MSCI inclusion, and greenwashing incentives. Notably, firms in pollution-intensive sectors and small and medium-sized enterprises show marked ESG improvements post-MSCI inclusion. Our findings underscore the positive role of capital market internationalization in advancing corporate ESG outcomes and offer valuable insights for policymakers and corporate managers aiming to achieve sustainable development goals.