Corporate Innovation and ESG Performance: The Role of Government Subsidies

This study investigates the impact of corporate innovation on Environmental, Social, and Governance (ESG) performance, analyzing the potential role of government subsidies, debt financing costs, corporate loans, and the nature of corporate ownership in this relationship. Using the data from Shenzhen A-share listed companies, excluding ST stocks and the financial sector, from 2014 to 2021, this study examines the relationship between the number of patents as a proxy variable for innovation capability and ESG performance through multiple regression analysis. It is found that there is a significant positive correlation between corporate innovation and ESG performance, indicating that firms’ innovation activities can improve their ESG performance. Moreover, corporate innovation increases government subsidies and lowers debt financing costs, promoting ESG performance. “Innovation level improvement → Increased government subsidies → Reduced debt financing costs → Improved ESG performance” is the chain mediation mechanism that underlies this impact. In addition, state-owned enterprises and firms with significant borrowing can benefit from the enhanced impact of innovation on ESG performance. This study offers new perspectives on how companies can leverage innovation to improve ESG performance and provides a reference for companies and policymakers regarding innovation and sustainable development.