In the face of unprecedented global challenges, understanding how corporate strategies adapt and evolve to sustain growth and social responsibility has become critical. A recent comprehensive study sheds light on the intricate dynamics between green innovation, digital transformation, and Environmental, Social, and Governance (ESG) performance, especially under the disruptive influence of the COVID-19 pandemic. This research uncovers vital insights into how firms navigate crises and optimize sustainable development pathways amid fluctuating economic and environmental pressures.
The COVID-19 pandemic lockdown period, spanning from 2020 to 2022 in China, offers a unique lens into the modulation of corporate green innovation efforts amidst severe operational constraints. Stringent lockdowns, starting with Wuhan and expanding nationwide, induced widespread resource scarcity, disrupted supply chains, destabilized capital markets, and fundamentally altered workplace environments. Using a robust econometric model including a COVID dummy variable to capture these unprecedented conditions, findings reveal a nuanced impact: while green innovation maintains a positive influence on ESG performance, the pandemic lockdown notably weakens this effect. This attenuation underscores the operational challenges and market contractions companies experienced, impeding their ability to fully leverage green innovation for sustainable advancement during crisis periods.
However, the study emphasizes that despite these setbacks, green innovation remains a critical enabler of corporate sustainability, with a statistically significant positive coefficient on ESG outcomes. This persistence highlights the resilience and strategic value of environmentally focused innovation, even in economic downturns and social upheavals.
Alongside external shocks, the role of executive-level green perception (Environmental Green Perception or EGP) emerges as a crucial internal driver influencing the synergy between green innovation and ESG success. By employing text analysis of annual corporate reports, the research quantifies EGP based on the presence of key environmentally oriented terms relating to competitive advantage, corporate social responsibility, and environmental pressures. The interaction between EGP and green innovation exhibits a significant positive moderation effect on ESG performance. This finding suggests that heightened environmental awareness and commitment among leadership not only bolster the execution of green technologies and practices but also amplify their impact on overall corporate responsibility and sustainability metrics.
This intrinsic motivator, rooted in managerial cognition theory, offers companies a vital lever to enhance strategic positioning and investment decisions focused on sustainability. It also provides empirical evidence to policymakers advocating for executive education and awareness programs to promote green economic transformations.
The research further dissects regional differences within China, recognizing the vast heterogeneity in economic development, industrial structure, resource availability, and policy frameworks. Dividing firms into eastern, central, and western regions reveals stark contrasts in how green innovation and digital transformation influence ESG outcomes. In the highly developed eastern region, green innovation and digitalization jointly serve as robust catalysts for ESG performance enhancements, underscored by proactive government policies, mature markets, and advanced technological infrastructure.
Conversely, the central region demonstrates greater reliance on digital transformation than green innovation for ESG advancement, reflecting its strategic pivot toward efficiency gains amid comparatively weaker technological support and investment in environmental R&D. The western region, burdened by limited infrastructure and resource constraints, exhibits no significant effects from either green innovation or digital transformation on ESG metrics. This disparity underscores underlying structural and systemic challenges that inhibit uniform sustainable development across diverse regional landscapes.
The study also delves into corporate ownership and market typologies to understand variations in sustainable innovation outcomes. State-owned enterprises (SOEs) exhibit pronounced positive effects from both green innovation and digital transformation on ESG performance, benefiting from clear policy directives, abundant resources, and stronger social responsibility mandates. These firms leverage synergy among green projects, R&D investments, and digital infrastructure to elevate their sustainability profiles significantly.
In stark contrast, non-SOEs depend more heavily on digital transformation to enhance ESG outcomes, with green innovation showing positive but statistically insignificant effects. This divergence is attributed to tougher market competition and constrained resource availability in non-SOEs, which prioritize immediate operational efficiencies over longer-term green innovation commitments.
Exploring the dimension of enterprise life cycle, the research distinguishes growth-stage firms listed on the Growth Enterprise Market (GEM) from their more mature counterparts. GEM companies, focused on rapid expansion and technological breakthroughs, display a weaker reliance on green innovation, with digital transformation playing a more pivotal role in ESG improvements. Their resource allocation priorities lean towards immediate returns and competitive agility rather than long-term sustainable innovation, which typically demands substantial upfront investment.
Non-GEM firms, by contrast, showcase stronger integrations of green innovation into ESG strategies, reflecting their more stable resource bases and strategic orientations toward sustainable competitive advantage. For these firms, digital transformation acts as a supportive catalyst complementing green innovation efforts.
Industry-specific analysis further reveals that heavy-pollution enterprises (HPEs) experience more substantial ESG performance gains from both green innovation and digital transformation than non-heavy-pollution enterprises (non-HPEs). The intense regulatory scrutiny, environmental externalities, and societal expectations faced by HPEs drive greater investments in technologies aimed at pollution reduction, resource efficiency, and social accountability. Digital transformation in this context enables smart manufacturing, green supply chain optimization, and data-driven environmental governance, which collectively contribute to significant sustainability improvements.
Non-HPEs also benefit from these strategies but to a lesser extent, often emphasizing efficiency and cost control over aggressive environmental innovation due to relatively lower external pressures.
Lastly, the research contrasts manufacturing and non-manufacturing sectors, delineating their unique sustainability trajectories. Manufacturing firms, characterized by high energy consumption and emissions, respond to stringent environmental regulations by prioritizing green innovation and digital transformation to achieve compliance and operational sustainability. These efforts manifest as substantial contributions to ESG performance.
Non-manufacturing firms, facing lower environmental impacts, show a comparatively muted but still positive response to these strategies, focusing digital transformation mainly on internal management efficiencies and service quality improvements that indirectly promote sustainable development.
In summary, this seminal study illuminates the complex interplay between external crises, managerial cognition, regional disparities, ownership structures, corporate lifecycles, and industry characteristics in shaping the efficacy of green innovation and digital transformation as pillars of ESG performance. It offers compelling evidence that while external shocks like the COVID-19 pandemic can dampen sustainability advancements, strategic leadership awareness and tailored digital strategies remain potent instruments for fostering corporate responsibility and long-term ecological stewardship.
These findings possess profound implications for corporate decision-makers and policymakers alike. They underscore the necessity of nurturing environmental consciousness at the executive level, implementing regionally nuanced and industry-specific policies, and integrating digital innovation with sustainability agendas. Embracing such multifaceted approaches will be indispensable for accelerating the global transition toward resilient, responsible economies attuned to the imperatives of the 21st century.
Subject of Research: The interaction of green innovation and digital transformation in enhancing corporate ESG performance, with a focus on moderating effects of unexpected public incidents and executive green perception, within the context of varying regional, ownership, developmental, and industrial structures in China.
Article Title: ESG performance, digital transformation, and green innovation
Article References:
Liu, Y., Kumar, S., Liu, H. et al. ESG performance, digital transformation, and green innovation. Humanit Soc Sci Commun 12, 1739 (2025). https://doi.org/10.1057/s41599-025-06027-9
Image Credits: AI Generated
