The effect of ESG ratings on corporate green innovation strategies: evidence from China

Environmental, social, and governance (ESG) approaches have gained popularity in academia and are typically linked to corporate green innovation. Although some scholars argue that corporate green innovation is merely greenwashing carried out in reaction to market pressure from ESG ratings, most research conducted thus far has shown that ESG exerts a beneficial influence on increasing corporate green innovation outputs overall. This study's analysis of panel data from Chinese A-share listed enterprises from 2010 to 2019 demonstrates that, while ESG ratings increase the likelihood of incremental green innovation in areas of current knowledge, they diminish the percentage of exploratory green patents. The managerial myopia brought about by ESG ratings is a key mechanism leading to this result. Extensive study indicates that analysts and managers who pay greater attention to environmental issues may be able to alleviate the negative effects of ESG scores on managerial myopia and company's incremental green innovation practices.