Policy Uncertainty and ESG Disclosures:The Mediating Role of Green Innovation Among China’s Leading Companies

Economic policy uncertainty (EPU) has intensified markedly in China, reshaping corporate decision-making across investment, financing and disclosure domains. Against this backdrop, Environmental, Social and Governance (ESG) disclosures have emerged as a strategic legitimacy device, yet the pathways through which EPU influences ESG transparency remain under-specified. This study examines whether green innovation mediates the EPU–ESG nexus and quantifies the magnitude of this indirect effect. Drawing on a comprehensive panel of Chinese A-share firms from 2010 to 2020, we merge ESG scores from China SynTao Green Finance STαR ESG Data Platform with manually validated green-patent records from the China National Intellectual Property Administration. EPU is captured via the Baker–Davis–Bloom index, interacted with industry-level policy-exposure weights to generate exogenous variation. Green innovation is measured along three dimensions: total green patent applications, authorized green invention patents and authorized green utility-model patents. A firm-fixed-effects mediation framework, augmented by instrumental-variable estimation, decomposes the total effect of EPU on ESG disclosure into direct and indirect components while controlling for firm size, leverage, profitability, board characteristics and year shocks. Four principal findings emerge. First, EPU exerts a significantly positive direct effect on ESG disclosure, indicating that firms counteract policy shocks by amplifying transparency to safeguard stakeholder trust. Second, green innovation—particularly high-quality green invention patents—acts as a statistically and economically meaningful partial mediator, transmitting approximately 15.35 % of the total EPU impact onto ESG scores. Third, large and highly leveraged firms exhibit disproportionately stronger sensitivity to EPU, adjusting ESG strategies more aggressively than smaller or low-debt counterparts. Fourth, robustness checks employing trade-policy uncertainty as a placebo shock, a pre-COVID subsample, alternative patent weighting schemes and causal-mediation bootstraps corroborate the stability and specificity of the mediation channel; non-green patents yield negligible mediation, underscoring the unique role of environmentally oriented innovation. The results highlight green innovation and ESG disclosure as complementary, co-adaptive strategies for managing policy uncertainty. Regulators are advised to foster innovation-friendly environments via targeted R&D subsidies, green-credit incentives and expedited patent-examination programs. Corporate managers should integrate explicit green-innovation roadmaps into ESG frameworks to translate technological capabilities into reputational resilience. By integrating macro-level policy shocks with micro-level sustainability behaviour, this study advances the literature on uncertainty and disclosure, offering actionable insights for scholars, policymakers and corporate boards in China and other emerging economies.