Understanding the mechanism of environmental, social, and governance impact on enterprise performance in the context of sustainable development

Abstract In transitional economies characterized by digital finance and uncertainty, the environmental, social, and governance (ESG) impact on enterprise performance has become a core issue in the sustainable development of enterprises. The existing literature does not pay attention to the simultaneous existence of digital finance and economic policy uncertainty in transition countries such as China. This paper introduces ESG as intangible capital into the Cobb–Douglas production function, considers the impact of digital finance and economic policy uncertainty, establishes a theoretical analysis framework, and empirically tests the impact of ESG on enterprise performance using panel data of 1688 listed companies in China from 2011 to 2020. The results reveal that ESG promotes enterprise performance; digital finance strengthens the positive impact of ESG on enterprise performance, and increased economic policy uncertainty strengthens the positive moderating effect of digital finance. Heterogeneity analysis reveals that the impact of ESG on enterprise performance and the moderating effect of digital finance are significant in both the eastern region and the central and western regions, but the former performs better when economic policy uncertainty increases. The research conclusion provides a policy reference for selecting appropriate digital finance policies to promote the sustainable development of enterprises with ESG as the core.