How ESG governance affects total factor productivity: Evidence from Chinese listed companies

This study investigates the complex relationships among environmental, social, and governance (ESG) practices and total factor productivity (TFP) in enterprises, which remains a topic of ongoing debate. Using a comprehensive dataset of 3970 Shanghai and Shenzhen A-share listed enterprises from 2010 to 2023, we find that ESG governance significantly enhances enterprise TFP. This conclusion is robust even after endogeneity concerns are addressed and robustness checks are performed. The mediating mechanism analysis reveals that ESG governance improves TFP through two primary pathways: promoting green innovation and reducing business risk. Furthermore, the moderating effect analysis demonstrates that media attention and government subsidies amplify the positive impact of ESG governance on TFP. The heterogeneity analysis indicates that the benefits of ESG governance are more pronounced for large enterprises, firms in China's central and western regions, nonheavily polluting industries, resource-dependent city enterprises, firms with high financing constraints, low-profit enterprises, and those adopting ESG practices following the 2015 policy tightening phase. This study contributes not only to the understanding of the mechanisms and boundary conditions through which ESG governance influences enterprise TFP but also to the literature concerning the economic consequences of ESG practices while offering practical insights for optimizing enterprise governance and informing policy formulation.