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How do ESG ratings promote digital technology innovation?

Author

Listed:
  • Hao, Pu
  • Alharbi, Samar S.
  • Hunjra, Ahmed Imran
  • Zhao, Shikuan

Abstract

With the rapid growth of the digital economy and the increasing focus on environmental sustainability, ESG ratings have become a key driver of corporate digital technology innovation and sustainability. However, the exact impact of ESG ratings on firms' digital innovation still needs to be explored. This study fills this gap by analysing the impact of ESG ratings on digital technology using a DID model with panel data of 18,741 listed companies in China's A share market from 2009 to 2021. Results show that higher ESG ratings have a significant positive impact on firms' digital technology innovation. ESG ratings foster digital technology innovation by driving increased R&D investment, enhancing financing opportunities, mitigating uncertainties tied to ESG indicators, and strengthening corporate reputation. This study further highlights how the impact of ESG ratings on digital technology innovation varies across regions and industries. Firms in high-tech sectors, heavily polluting industries, and the eastern and central regions of China derive the most benefit from the positive influence of ESG ratings on digital technology innovation. In contrast, Western regions, non-high-tech industries, and non-heavily polluting industries are less responsive to the positive impact of ESG ratings on digital technology innovation. This study offers strategic insights for business leaders, highlighting the role of ESG ratings in driving digital innovation. It also provides valuable guidance for policymakers to create targeted policies that foster technological advancement and promote sustainable growth across industries and regions.

Suggested Citation

  • Hao, Pu & Alharbi, Samar S. & Hunjra, Ahmed Imran & Zhao, Shikuan, 2025. "How do ESG ratings promote digital technology innovation?," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924008184
    DOI: 10.1016/j.irfa.2024.103886
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