A Study on the Relationship between Digital Transformation, ESG Performance, and Firm Performance

With globalization and intensified market competition, digital transformation and ESG (environmental, social, and governance) performance have become key drivers of firms’ sustainable development. This study uses Chinese A-share listed firms from 2014 to 2023 to examine the effects of digital transformation on ESG performance and firm performance. The results show that digital transformation significantly improves firms’ ESG performance, with heterogeneous effects across the environmental, social, and governance dimensions. Further analysis indicates that digital transformation may exert short-term downward pressure on firm performance in the early stage due to delayed investment returns. However, strong ESG performance plays a buffering role by mitigating the negative performance effects associated with digital transformation. These findings suggest that ESG is not only an outcome of digital transformation but also a key moderating factor in its economic consequences.