Exploring the impact of ESG ratings on enterprises' green technology innovation

Green technology innovation (GTI) is a crucial factor in the global quest for sustainability. This study examines the impact of environmental, social, and governance (ESG) ratings provided by SynTao Green Finance on the GTI of Chinese A-share listed enterprises from 2007 to 2022. By utilizing the time-varying difference-in-differences (DID) model and examining the promotion effect of GTI in application and authorization, the study demonstrates a positive relationship between higher ESG ratings and enterprises’ GTI. This conclusion is substantiated through rigorous robustness tests. The findings indicate that ESG ratings facilitate enterprises’ GTI by addressing financing constraints, mitigating agency issues, and fostering research and development investment. Moreover, ESG ratings are found to be beneficial for enterprises operating in highly competitive markets and garnering significant analytical attention, while not being conducive to GTI in heavily polluting or manufacturing enterprises. By overcoming the limitations of the traditional Ordinary Least Square model in dealing with time trends and persistence effects, this study elucidates the influencing factors of ESG ratings on enterprises’ GTI. Consequently, it provides valuable insights for enterprises to develop targeted sustainable strategies and achieve a mutually beneficial outcome for the economy and the environment.