ESG performance and firm productivity in China: A systematic review of transmission mechanisms

Abstract

Environmental, Social, and Governance (ESG) performance is widely used to assess corporate sustainability, yet its impact on firm-level productivity remains debated. This study conducts a mechanism-based systematic literature review to synthesise empirical evidence on the relationship between ESG performance and firm-level total factor productivity (TFP), including green TFP, with a particular focus on Chinese listed firms. In accordance with PRISMA guidelines, peer-reviewed articles published between 2020 and 2026 were retrieved from Web of Science and Scopus. After screening and duplicate removal, 46 empirical studies were retained and coded using a structured framework covering ESG measures, productivity indicators, empirical strategies, and key findings. Rather than organising the evidence by environmental, social, and governance pillars, this review classifies prior studies according to the mechanisms through which ESG affects productivity. Overall, the literature suggests that stronger ESG performance is generally associated with higher productivity, although the magnitude and significance of the effects vary across samples, measurement approaches, and institutional settings. More importantly, the evidence points to a broad coordination-based explanation: ESG enhances productivity mainly by improving coordination efficiency within and outside the firm. By strengthening information credibility, accountability, and stakeholder trust, ESG reduces monitoring costs, transaction frictions, and resource misallocation, thereby enabling more effective production and investment decisions. Within this framework, the most robust channels are the alleviation of financing constraints through improved disclosure and external legitimacy, and the promotion of green and technological innovation, especially under stricter environmental regulation. Other mechanisms, including human capital development, reduced inefficient investment, supply-chain spillovers, and risk mitigation, receive support mainly in specific contexts and appear more sensitive to firm-level and institutional conditions. Overall, ESG improves productivity through indirect, constraint-relaxing, and capability-building mechanisms rather than through immediate technological change alone. This review clarifies when, why, and through which channels ESG matters for productivity, and offers implications for future research, corporate strategy, and policy design in emerging market settings.