The carbon emission trading system profoundly impacts enterprises’ sustainable development as an important market incentive environmental regulation tool. Through data collected from Chinese A-share listed enterprises in Shanghai and Shenzhen from 2011 to 2019 and Bloomberg ESG score data, this paper empirically analyses the impact of carbon emission trading policy on enterprise ESG performance and its channel mechanism using the difference-in-difference (DID) method. Results of this study indicate that carbon emission trading policy improves enterprise ESG performance significantly, and robustness tests confirm these findings. Carbon emission trading policy can encourage enterprises to enhance their R&D investments and promote internal controls, ultimately enhancing their ESG performance. Additionally, carbon emission trading policy positively impacts ESG performance in low-carbon enterprises, enterprises where the CEO is separated from the company, enterprises with a high degree of digital transformation, and enterprises receiving high government subsidies. This paper extends our research into the economic implications of carbon emission trading policy, enriching the literature on market-based environmental regulation policies’ impact on enterprise ESG performance. With respect to governments’ use of carbon emission trading to regulate enterprises environmentally, this paper provides theoretical guidance. It has significant practical implications for improving enterprise ESG performance and sustainability.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.