ESG Decoupling and Innovation: Are China's Agri-Food Companies Walking the Walk?

Abstract

Promoting sustainable, innovation-driven growth is crucial for achieving high-quality economic development in the new era. As a key indicator of companies' sustainability, ESG practices have gained significant attention. However, the lack of a unified ESG evaluation framework and standardized disclosure regulations has led some companies to exaggerate or misrepresent their ESG performance—an issue known as “ESG decoupling.” This study examines the impact of ESG decoupling on agri-food companies' innovation, using panel data from 2011 to 2022. The results show that ESG decoupling undermines a company's credibility, hindering innovation. However, independent directors mitigate the negative effects of ESG decoupling on innovation. Further analysis reveals that the impact of ESG decoupling is less severe in companies with low digital transformation levels and state-owned enterprises (SOEs). In contrast, the negative effects are more significant in large companies and the food industry. These findings contribute to a deeper understanding of the relationship between ESG decoupling and innovation. It offers empirical evidence and expands the theoretical framework linking ESG behavior with innovation. Ultimately, the study highlights the need for improved ESG disclosure systems and enhanced companies' credibility to foster a more innovation-friendly environment.