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Can ESG enhance the efficacy of emissions trading systems on enterprise productivity: Evidence from China

Document Type

Research-Article

Author

Qiang Tu, Jianing Wang, Limei Zuo, Ye Yao, Qiang Ji

Journal Name

Research in International Business and Finance

Keywords

Carbon emission trading scheme, Difference-in-difference, Environmental, Social, and governance, Total factor productivity

Abstract

The impact of Emissions Trading System on firm-level Total Factor Productivity is still controversial. With more firms disclosing their Environmental, Social, and Governance performance, a key area of interest is understanding the role of ESG disclosures in strengthening the effectiveness of firm-level TFP in the context of ETS. Can ESG disclosures make ETS more effective for firms? And if so, how does this interaction work to improve firm-level TFP? We address these questions by using a difference-in-difference model. The results show that ESG disclosure enhances the ETS's impact on TFP by 0.155. The combined use of ETS and ESG significantly improves TFP for state-owned and larger firms, particularly in power generation and iron/steel sectors. The underlying influence mechanisms include financing effect, technological innovation effect, and “financing-innovation” chain mediating effect. The study offers insights into designing effective ETS and ESG strategies for government decision-making. © 2025 Elsevier B.V.

http://doi.org/10.1016/j.ribaf.2025.102845

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