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

DOI: https://doi.org/10.1057/s41599-025-06027-9

At the heart of this investigation lies a compelling narrative that defies simplistic assumptions about energy finance. The study challenges the pervasive notion that fossil fuel finance is inherently detrimental to sustainability goals. Instead, it posits that under certain institutional conditions, fossil fuel investments can coexist with—and even catalyze—progress in sustainable development. This paradigm shift emerges from the first identified synergy, where high fossil fuel energy finance is complemented by amplified digital financial inclusion and effective governance accountability, offsetting the environmental drawbacks traditionally associated with fossil fuel dependence.

This first pathway underscores the crucial role of governance mechanisms in transforming potential environmental liabilities into developmental assets. Governance accountability, marked by transparency and public sector efficiency, interacts dynamically with digital financial infrastructure to foster economic inclusivity. Such institutional robustness ensures that fossil fuel revenues do not merely perpetuate extractive economic models but are instead channeled into projects that enhance social welfare and promote inclusive growth. These findings resonate profoundly with institutional theory, emphasizing the primacy of sound governance frameworks as engines for sustainable progress even in energy mixes dominated by conventional sources.

The second synergy identified pivots on the resilience of sustainable development in contexts where governance accountability may be weak or inconsistent. In these scenarios, the combined force of sizeable investments in both fossil fuels and renewable energy, underpinned by widespread digital financial inclusion, acts as a counterbalance. This finding aligns with transitional development theories that highlight the importance of technological and financial momentum compensating for institutional shortcomings. Digital inclusion emerges as a democratizing force, broadening access to financial tools critical for both green and non-green energy ventures, thereby sustaining economic activity and fostering inclusive development.

Here, the digital financial landscape acts as a pivotal enabler, lowering barriers to entrepreneurship and facilitating access to capital for diverse energy projects. This broad-based financial accessibility mitigates institutional weaknesses by empowering a broader swathe of the population to participate in development processes. Furthermore, it suggests a layered complexity in how energy infrastructures and financial ecosystems operate symbiotically, reinforcing the notion that neither energy investment nor governance alone can singularly drive sustainable outcomes without robust digital connectivity.

In stark contrast to the previous two synergies, the third pathway represents an aspirational and ideologically resonant configuration: low fossil fuel energy finance paired with high renewable energy investment, digital financial inclusion, and governance accountability. This synergy epitomizes the principles of ecological modernization theory, positing that a transformative shift towards clean energy, smart governance, and technological diffusion is the most stable and sustainable long-term development path. The synergy affirms that institutional accountability plays a foundational role in enabling green transitions, ensuring that investments in renewable energy are effective, equitably distributed, and supported by enabling digital environments.

This ideal configuration signifies a systemic recalibration away from energy paradigms that have historically prioritized fossil fuels. It emphasizes the necessity for integrated policy frameworks harmonizing financial incentives, governance reforms, and technological infrastructures. Such alignment catalyzes the transition towards decarbonized economies within BRICS nations, heralding a future state where ecological sustainability and inclusive growth are mutually reinforcing rather than adversarial objectives.

Complementing these nuanced insights from the qualitative comparative analysis, the study’s econometric evaluation via dynamic ordinary least squares (OLS) further substantiates the positive influence of all four variables—fossil fuel energy finance, renewable energy finance, digital financial inclusion, and governance accountability—on sustainable development. This quantitative affirmation validates the multifactorial nature of developmental progress while also highlighting the limitations of conventional linear models like OLS, which often neglect the interactive or compensatory relationships revealed by QCA.

Notably, the positive coefficient associated with fossil fuel finance ascertains that fossil energy investments, when efficiently managed, can contribute constructively to infrastructure development and transitional energy innovations. This challenges critiques that dismiss fossil fuel finance as harmful by default, instead suggesting that strategic deployment of such capital, in tandem with governance and digital inclusion, supports a phased transition towards sustainability.

Among the variables, digital financial inclusion stands out as a consistently positive driver across diverse analytical approaches. The findings articulate its role as a critical enabler, facilitating access to financial services, lowering transaction costs, empowering entrepreneurship, and stimulating innovation in green technologies. Digital finance thus emerges as a keystone in the architectural framework underpinning sustainable development, bridging gaps between markets, consumers, and institutions.

Policy implications derived from these complex insights urge a departure from monolithic, one-size-fits-all prescriptions. Recognizing the heterogeneity of economic and governance contexts across BRICS countries, strategies must be tailored to current institutional realities. For nations navigating transitional phases with weaker governance, incremental gains in sustainability can still be achieved by leveraging fossil fuel finance and enhancing digital financial ecosystems. This orientation pragmatically embraces the imperfections of developmental stages while maintaining momentum toward more sustainable configurations.

Simultaneously, the overarching long-term objective should be to foster conditions envisaged by the third synergy, which emphasizes renewable energy investments reinforced by accountable governance and robust digital inclusion. This aspiration demands integrated policy designs that do not solely prioritize clean energy deployment but also deepen institutional reforms and digital infrastructure expansion. Such comprehensive approaches are essential for realizing the full potential of sustainable development agendas within emerging economies.

The study’s multifaceted methodology itself symbolizes a methodological advancement in sustainability research. By integrating dynamic QCA—a method adept at capturing configurational causality and complex interactions—with traditional econometric analysis, the researchers provide a richer, more precise understanding of causality in sustainability dynamics. This methodological sophistication prompts a re-evaluation of dominant research paradigms, encouraging scholars to embrace complexity rather than reductive simplifications.

Moreover, the emphasis on BRICS countries situates the findings within critical contexts of global economic transformation. These emerging economies, with their vast population bases, rapid urbanization, and diverse political systems, occupy pivotal roles in global sustainability transitions. Understanding their unique pathways offers valuable lessons transferable to other developing and transitional economies grappling with similar dilemmas.

In conclusion, this pioneering research reframes sustainable development not as a linear process driven solely by green investments or governance reforms but as an emergent property of interconnected financial, technological, and institutional arrangements. It challenges scholars and policymakers alike to envision sustainability as a dynamic mosaic, capable of manifesting through multiple pathways contingent upon contextual interactions. The implications extend beyond academic debates, offering actionable insights for designing nuanced, inclusive, and resilient development strategies attuned to the realities of our rapidly evolving energy and governance landscapes.

Subject of Research: Energy finance, digital financial inclusion, governance accountability, and their combined effects on sustainable development in BRICS countries.

Article Title: Energy finance, digital financial inclusion, accountability and sustainable development: evidence from BRICS.

Article References:
Xia, L., Fatema, N. Energy finance, digital financial inclusion, accountability and sustainable development: evidence from BRICS.
Humanit Soc Sci Commun 12, 1253 (2025). https://doi.org/10.1057/s41599-025-05410-w

Image Credits: AI Generated