Study on the Impact of ESG Rating Discrepancies on the Sustainability of Corporate Green Innovation

Abstract

As ESG principles have become increasingly influential in guiding investment strategies and corporate decisions, notable variations in ESG evaluations across different rating organizations have become a frequent occurrence. Yet, the precise mechanisms through which these variations affect corporate efforts in sustainable innovation are not fully understood. This study focuses on Chinese A-share companies listed in Shanghai and Shenzhen between 2015 and 2022, analyzing how divergences in ESG ratings influence the long-term viability of corporate green innovation and the underlying dynamics. The findings reveal that discrepancies in ESG ratings undermine the enduring nature of corporate green innovation. Further analysis of mechanisms indicates that limited access to financing and heightened business risks serve as critical pathways through which ESG rating divergences impair the continuity of green innovation. Results from heterogeneity analysis suggest that, in contrast to non-heavy-polluting firms and state-owned entities, the adverse effects of ESG rating divergences on green innovation persistence are more pronounced in heavy-polluting firms and non-state-owned entities. This study sheds light on the consequences of ESG rating divergences for the persistence of corporate green innovation, broadens the scope of research on ESG rating variations and the durability of green innovation, and offers empirical support for enhancing China’s ESG rating framework and fostering the long-term viability of corporate green innovation.