Sowing the seeds of sustainability: how does green finance reform shape corporate ESG performance?

In the context of rising global eco-concern, China introduced the green finance reform and innovation (GFRIs) policies to promote sustainable growth, rendering corporate ESG performance increasingly salient. This study evaluates the impact of GFRIs policies on ESG performance of Chinese listed firms from 2015 to 2022, and delves into the mechanisms of green investments, green innovation, and government environmental concern. By employing a dynamic difference-in-differences model and considering firms in GFRIs pilot zones as the treatment group, we find that: First, green finance reform can significantly enhance corporate ESG performance, and this result remains robust across various tests. Second, the impact is more pronounced among growth-stage firms, private firms, and small-scale firms, as revealed by our heterogeneity analysis. Third, the mechanism tests show that green finance reform improves corporate ESG performance by boosting green investments, fostering green innovation, and heightening local government environmental concerns. Fourth, firm executives' attributes influence the impact of green finance reform on ESG performance, and the involvement of CPC member executives, female executives, and socially-responsible executives can positively moderate this effect. This study provides valuable insights into sound green finance strategies for developing countries by highlighting the positive impacts of green finance reforms on microeconomic outcomes.