Can ESG Performance Sustainably Reduce Corporate Financing Constraints Based on Sustainability Value Proposition?

Abstract

Under the pressure of global low-carbon transformation, the sustainable development initiative of the United Nations has gradually become an essential orientation of corporate Environmental, Social, and Governance (ESG) performance. Based on the integrated theoretical framework of sustainable development finance, this work explores the relationships among corporate ESG performance, its financing constraints in China, and its influencing mechanism, as well as the role played by green innovation in this relationship. Using a comprehensive panel dataset of 1038 A-share listed companies from 2013 to 2023, totaling 11,418 observations, we find that corporate ESG performance and financing constraints exhibit a significant negative relationship, indicating that strong corporate ESG performance can effectively alleviate corporate financing constraints. To address endogeneity concerns, we employ a systematic generalized method of moments (GMM) and a two-stage least squares regression using lagged instrumental variables. The results of the mechanism test show that ESG performance mitigates financing constraints by reducing perceived financial risks, improving information transparency, and increasing access to government green subsidies. Furthermore, moderating effect analysis reveals that green innovation strengthens the mitigating effect of corporate ESG performance on financing constraints in this process, based on SDG 9. Heterogeneity analysis reveals that this mitigating effect of corporate ESG performance on financing constraints is more pronounced for firms in China’s economically advanced eastern region, for companies facing harder budget constraints, and in the period following the implementation of the stringent new Environmental Protection Law. Distinguishing between genuine and symbolic corporate actions, we provide evidence that only substantive ESG improvements, as opposed to “greenwashing,” are rewarded by capital providers. The findings provide insights for the formulation of government policies and corporate sustainability strategies in emerging markets

This research was funded by Jiangxi Management Science Program “Research on Financing Mechanism Innovation and Policies of Sci-tech Finance to Support the Development of Digital Economy Enterprises in Jiangxi” (20252BAA100067)

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