The impact of ESG performance on TFP: the role of government subsidies and industrial policies

We analyzed the impact mechanism and heterogeneous impact of corporate environment, society, and governance (ESG) performance on total factor productivity (TFP) using data from China’s A-share listed companies from 2009 to 2021. And further emphasized the important role of the government (through government subsidies and industrial policies) in this process. We discovered that the increase in corporate ESG performance significantly promoted TFP growth. In addition, ESG can promote TFP growth by increasing government subsidies and easing financing constraints. Second, the promoting effect of ESG on the TFP of companies with low TFP levels continues to increase, while that of companies with high TFP levels continues to decline. Third, the promoting effect of ESG on TFP is more significant in state-owned enterprises than in non-state-owned enterprises. In addition, ESG can promote TFP growth in various factor-intensive enterprise types. Fourth, active industrial policies can expand the role of ESG in promoting TFP. Our findings complement research on the impact of ESG on TFP and provide evidence that ESG strategies are beneficial to enhancing the core competitiveness of enterprises. This article provides valuable insights for Chinese companies, investors, and policymakers and a valuable reference for ESG practices in other emerging countries.