Institutions empowerment for sustainability: ESG performance and enterprise green innovation-Evidence from China

Institutions are the driving elements of macroeconomic growth and microenterprise development, and the greening of modern enterprise institutions has given rise to the ‌environmental, social and governance (ESG) evaluation system. Considering ESG as an institutional factor and examining its impact on enterprises' green innovation. An empirical analysis using data from 5252 A-share listed enterprises in China from 2009 to 2023 reveals that ESG performance significantly promotes green innovation, and this promotion effect is driven by alleviating financing constraints and enhancing executives' green awareness. Meanwhile, digitalization and financialization play a moderating role, with digitalization strengthening and financialization weakening the promotion effect. Heterogeneity analysis indicates that ESG's impact on green innovation is stronger in state-owned enterprises, enterprises with executives having academic or financial backgrounds, heavily polluting, and manufacturing enterprises. Additionally, ESG performance more significantly enhances enterprises' independent and substantial green innovation ability. We offer new evidence for research on ESG and green innovation and provide insights for enterprises to enhance green innovation through improved ESG performance.