How environmental regulation policies affect corporate ESG ratings: Latecomer advantage in China's digital economy

Corporate Environmental, Social, and Governance (ESG) factors are crucial for businesses to achieve long-term sustainable development, enhance competitiveness, and reduce risks. They play a significant role in meeting stakeholder expectations, enhancing brand reputation, attracting investment and talent, driving innovation and value creation, and fulfilling social and environmental responsibilities. Using panel data from Chinese listed companies between 2009 and 2021, this study utilizes the new environmental air quality standards (NEAQS) policy as a quasi-natural experiment to examine the impact of environmental regulatory policy on corporate ESG ratings in the context of the digital economy. This study finds that environmental regulation policies enhance corporate ESG ratings, with a latecomer advantage in the digital economy. Mechanism analysis indicates that promoting digital transformation, fostering green innovation, and increasing environmental costs are important mechanisms through which the NEAQS policy enhances corporate ESG ratings. Heterogeneity analysis shows that, in the context of digital economic development, companies with lower levels of digital transformation, asset intensity, and financing constraints have a latecomer advantage and can elevate corporate ESG ratings more effectively through digital transformation under environmental regulatory policies. This study provides new empirical evidence on the relationship between environmental regulatory policies and corporate ESG ratings and offers policy support for other countries seeking to enhance corporate social responsibility through environmental regulatory policies in the digital economy.