ESG practice diffusion through corporate networks: A computational analysis of Chinese firms

Environmental, social, and governance (ESG) practices have become central to corporate strategy, yet the understanding of how sustainability initiatives spread across firms remains limited. While firms operating in similar institutional environments exhibit substantial heterogeneity in ESG adoption, network relationships may provide crucial channels for practice diffusion through information sharing, resource access, and legitimacy spillovers. This study examines how ESG practices diffuse through corporate networks using computational analysis of 4500 Chinese publicly-listed firms from 2015 to 2023. The research addresses fundamental questions about network mechanisms in sustainability adoption by constructing similarity-based geographic and industry networks and analyzing diffusion patterns through multiple centrality measures and spillover effects. Results reveal substantial network effects generating 14.78 million RMB improvements in ESG investment per firm, representing 32.17 % performance increases. Geographic and industry networks demonstrate strong spillover correlations exceeding 0.85, though they operate through distinct mechanisms. Geographic eigenvector centrality enhances ESG performance, while industry centrality constrains it, indicating that cross-sector knowledge sharing proves superior to within-industry benchmarking. Causal identification through instrumental variables confirms genuine network effects with coefficients of 304.97. Information transmission emerges as the dominant diffusion mechanism, generating 28.58 million RMB premiums for firms with board ESG expertise. The findings contribute to network theory in corporate governance, ESG diffusion research, and computational methodology while providing evidence-based recommendations for corporate strategy and policy design.