Digital transformation, financing constraints, and corporate environmental, social, and governance performance

Abstract Digital transformation is globally pervasive, and exploring how it can shape enterprises' sustainable development is significant. Using the panel data of 710 listed corporates in China from 2011 to 2020, this paper empirically investigates the impact of digital transformation on corporate Environmental, Social and Governance (ESG) performance with the fixed effect model and the SYS‐GMM method. The results indicate that digital transformation significantly improves corporate ESG performance, especially environmental and social performance. A looser financing constraint (FC) environment will make the improvements in ESG performance from digital transformation more visible. Among corporates with low FCs, private corporates, and non‐technical corporates, digital transformation has a more noticeable effect on improving ESG performance by easing FCs. Our research presents implications for policymakers and business decision‐makers to achieve alignment between corporate digitalization and sustainability.