Digital transformation and ESG: an exploration of sustainable development paths for Chinese enterprises

Abstract

Purpose In the context of increasing emphasis on sustainability, a company's practices concerning environmental, social and governance (ESG) factors significantly impact its progress and have evolved into crucial indicators of corporate sustainability. Despite the enhancement of green production capabilities through the adoption of digital technologies, these technologies have also intensified financing constraints, thereby impeding corporate sustainability. This paper aims to examine the mechanisms and diverse perspectives involved to better harness the positive impact of digital technologies on corporate green sustainability, positioning these technologies as a pivotal force in advancing corporate green development. Design/methodology/approach This paper comprehensively examines the impact and mechanisms of digital transformation on corporate sustainability through the lenses of stakeholder theory, risk management theory and internal control theory. Utilizing a sample of Chinese A-share listed companies from 2011 to 2022, the study employs a two-way fixed effects panel model to investigate the effects of digital transformation on ESG performance and the underlying mechanisms. Additionally, it explores heterogeneity based on firm characteristics and development stages. Findings The study finds that digital transformation significantly enhances corporate ESG performance, with results robustly validated through a series of stringent tests. Heterogeneity analysis reveals that state-owned enterprises, heavily polluting firms and mature companies experience more pronounced improvements in ESG levels through digital transformation. Mechanism analysis indicates that the impact of digital transformation on ESG performance primarily arises from increased innovation capabilities, alleviated economic policy interventions and improved internal control standards. Originality/value Firstly, while scholars acknowledge the positive impact of digital transformation on corporate ESG performance, there is a notable lack of cross-sectional comparisons among different types of enterprises. Building on previous research, this study integrates analyses of ownership structure, industry characteristics and production attributes to derive detailed conclusions about the varying effects of digital transformation on ESG performance across different types of firms. Secondly, grounded in stakeholder theory and related frameworks, the paper analyzes the mechanisms through which digital transformation influences corporate sustainability, providing strategic insights for firms on how to leverage digital technologies to enhance their ESG performance.