Liu, Li Xian, Sun, Zhiyue, and He, Keren (2025) Toward a sustainable future: ESG as a mediator of innovation and performance under institutional contingencies. Sustainable Futures, 10 (101110).

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Abstract

This study examines how technological innovation influences firm performance through the mediating role of Environmental, Social, and Governance (ESG) engagement, and how this relationship is conditioned by institutional quality and firm nature in China. Using panel data from 3,300 listed firms (2010–2023), we apply a moderated mediation framework with subnational institutional indicators and a binary ownership classification. Quantitative results show that innovation enhances ESG engagement, which in turn improves firm performance when measured by ROA, but not by Tobin’s Q. Specifically, innovation increases Huazheng ESG scores by 2.80–2.90 units and Wind scores by 3.60–3.70 units. A one-unit rise in Huazheng scores raises ROA by 2.1%, and Wind scores by 1.5%. Mediation analysis confirms a significant indirect effect of innovation on ROA via ESG (0.052–0.114), though the effect is negative for Tobin’s Q (−0.122 to −0.319). The ESG-mediated pathway is further moderated by institutional conditions. The positive moderating effect of non-state sector development on the innovation–ESG link is stronger for SOEs, especially in regions with more developed private sectors. In contrast, factor market development and improvements in the legal-institutional environment strengthen the innovation–ESG relationship more for non-SOEs. Where property rights are better protected and resources more efficiently allocated, non-SOEs gain legitimacy and utilize resources more effectively. These findings highlight ESG as a strategic channel for converting innovation into value, shaped by institutional and organizational contexts, and contribute to sustainability strategy literature by unpacking how institutional heterogeneity and ownership identity influence ESG-aligned innovation in emerging economies.

Item ID:	86594
Item Type:	Article (Research - C1)
ISSN:	2666-1888
Keywords:	Technological innovation; ESG engagement; Conditional moderated mediation; Sustainability; Institutional quality
Related URLs:	https://www.sciencedirect.com/science/ar...
Copyright Information:	Copyright © 2025 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
Date Deposited:	11 Aug 2025 03:21
FoR Codes:	38 ECONOMICS > 3801 Applied economics > 380199 Applied economics not elsewhere classified @ 40% 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3507 Strategy, management and organisational behaviour > 350705 Innovation management @ 35% 44 HUMAN SOCIETY > 4407 Policy and administration > 440703 Economic development policy @ 25%
SEO Codes:	15 ECONOMIC FRAMEWORK > 1503 Management and productivity > 150306 Technological and organisational innovation @ 40% 19 ENVIRONMENTAL POLICY, CLIMATE CHANGE AND NATURAL HAZARDS > 1902 Environmental policy, legislation and standards > 190206 Institutional arrangements @ 35% 15 ECONOMIC FRAMEWORK > 1503 Management and productivity > 150302 Management @ 25%
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