Digital Transformation Boosts ESG Performance, Chinese Firm Data Show

Digital transformation is positively associated with stronger environmental, social, and governance (ESG) performance among Chinese listed firms, according to a new study drawing on panel data from Chinese A-share companies between 2009 and 2023. The research, published in Frontiers in Environmental Science, examines not only whether firms that digitalize perform better on ESG metrics, but also how that relationship works and under what market conditions it is strongest.

The study, led by Fang Wang of Shanxi Technology and Business University and Universiti Kebangsaan Malaysia, together with Mohd Fahmi Ghazali and Pengfei Hu, frames digital transformation as more than the simple adoption of digital technologies. Building on the twin green and digital transformation perspective, the authors conceptualize it as a dynamic green digital capability: an evolving organizational capacity that combines data-driven sustainability management with the ability to generate environmentally oriented innovation.

To explain why digitalization might improve ESG outcomes, the researchers integrate three theoretical strands: the Natural Resource-Based View, Stakeholder Theory, and the Porter Hypothesis. In their framework, digital transformation strengthens firms’ data-driven sustainability capabilities and enables green technological innovation, which in turn supports comprehensive ESG improvement. ESG performance in the analysis is measured using Huazheng ESG ratings, a widely used scoring system for Chinese listed companies.

The central empirical finding is a positive association between digital transformation and ESG performance. The authors are careful to describe this as an association in panel data rather than proof of a causal effect, and the study’s scope is limited to Chinese A-share listed firms over the 2009 to 2023 period.

A key contribution lies in testing the mechanism behind the link. Green technological innovation does mediate the relationship between digital transformation and ESG performance, but the mediation is partial and, in the authors’ words, economically modest. That suggests green innovation is only one channel within a broader set of digitalization-to-ESG pathways, and that other mechanisms—unmeasured in this study—account for much of the observed association.

The study also identifies a boundary condition rooted in market structure. Market concentration strengthens the positive effect of digital transformation on ESG performance. The interpretation offered is that firms operating in more concentrated industries are better able to appropriate the returns from long-term digital and sustainability investments, making them more willing to commit resources to both transformations at once.

Heterogeneity analyses add further nuance. The positive effect of digital transformation on ESG performance is observed across regions and across ownership types, indicating the relationship is not confined to a particular part of China or to a specific category of firm ownership.

Industry pollution profiles tell a more complicated story. In pollution-related industry subsamples, the effect of digital transformation is statistically significant among non-high-polluting firms but not statistically significant among high-polluting firms. However, the authors report that the between-group difference itself is not statistically significant, meaning the data do not establish that high-polluting and non-high-polluting firms genuinely differ in how digitalization relates to their ESG performance.

The findings carry practical implications for managers and policymakers interested in the twin transformation agenda. According to the authors, the ESG value of digital transformation depends not only on whether firms adopt digital technologies, but also on whether they develop dynamic green digital capabilities and operate in market environments that support long-term sustainability investment. Where competitive structures reward patient investment, digitalization appears more strongly aligned with ESG improvement.

The study contributes to a growing literature by clarifying both the innovation mechanism and the market-structure condition through which digital transformation supports ESG performance. As with any panel-data study of listed firms, the results describe patterns within one national market and one rating system, and the modest size of the green-innovation channel signals that the full set of pathways linking digitalization to sustainability outcomes remains an open research question.

Subject of Research: The relationship between corporate digital transformation and ESG performance among Chinese listed firms

Article Title: Digital transformation and corporate ESG performance: green technological innovation, market concentration, and the twin transformation perspective

Article References: Wang, F., Ghazali, M. F., & Hu, P. (2026). Digital transformation and corporate ESG performance: green technological innovation, market concentration, and the twin transformation perspective. Frontiers in Environmental Science, 14, Article 1908807. https://doi.org/10.3389/fenvs.2026.1908807

Image Credits: AI Generated

DOI: 10.3389/fenvs.2026.1908807

Keywords: digital transformation, ESG performance, green technological innovation, market concentration, twin transformation, Chinese A-share firms, Huazheng ESG ratings, dynamic capabilities, sustainability, corporate governance, Digital, transformation