Economic Policy Uncertainty and Firm ESG Performance

Against the background of the impact of multiple uncertain events, such as COVID-19, the Russia-Ukraine conflict, and China-US trade frictions, it is of great strategic significance for enterprises to achieve their own sustainable development by improving ESG (environmental, social, and internal governance) performance. Using the data of Chinese A-share listed companies from 2011 to 2020, this paper empirically explores the effect of economic policy uncertainty (EPU) on corporate ESG performance. We obtain the following results: (1) EPU can promote firms to enhance ESG performance, and in each sub-item of ESG performance, EPU has the strongest promotion effect on corporations' environmental performance (E), followed by social responsibility performance (S), while EPU has a relatively weak promotion effect on internal governance performance (G). (2) The mechanism test results show that EPU will exacerbate the credit risk of enterprises and then promote the improvement of enterprises' ESG performance. (3) The grouping test results show that EPU has a stronger promotion effect on the ESG performance of state-owned enterprises, high-carbon industries, low regional marketization level, and enterprises with strong regional government intervention. Against the realistic background of the frequent adjustment of economic policies, the research results provide empirical evidence for guiding enterprises to strengthen the construction of ESG systems.