Research on the Impact of Green Finance Reform and Innovation Pilot Zone Policy on Corporate ESG Performance: An Empirical Analysis based on the Multi-period Difference-in-Differences Model

Abstract

This paper takes the Green Finance Reform and Innovation Pilot Zones (GFRIPZ), established in batches since 2017 in China, under quasi-natural experimental conditions. Drawing on panel data of Shanghai and Shenzhen A-share publicly traded firms spanning 2014 to 2022, we adopt a staggered difference-in-differences (DID) framework to evaluate the policy’s effects on firm-level ESG performance and its underlying mechanisms.Drawing on panel data of Shanghai and Shenzhen A-share publicly traded firms spanning 2014 to 2022, we adopt a staggered difference-in-differences (DID) framework to evaluate the policy’s effects on firm-level ESG performance and its underlying mechanisms. Our findings are threefold. First, the GFRIPZ policy significantly improves the ESG performance of firms in the test areas, and the results passed a series of stability tests. Secondly, the analysis of the mechanism shows that the policy enhances ESG performance by promoting digital transformation, stimulating corporate green innovation and optimizing the quality of environmental disclosure. Third, heterogeneity analysis shows that the policy exerts a more prominent effect among state-owned enterprises, non-heavily polluting industries, as well as firms based in the eastern and western regions, while the benefits for firms in central regions and private enterprises are relatively limited. This present study furnishes theoretical as well as  empirical evidence for policymakers and enterprises to optimize green finance policy design and improve ESG performance.