Does environmental decentralisation improve ESG performance? Evidence from listed companies in China

Environmental management systems are essential for promoting sustainable development. Rational distribution of environmental management responsibilities among governmental entities is a fundamental requirement and institutional framework. China's Direct Reporting of Environmental Statistics for National Key Supervision Enterprises (DRES) policy is a reform initiative that is intended to recalibrate environmental decentralisation to intensify environmental oversight. Using manually-collected data from key A-share listed companies from 2009 to 2021, this study employs a difference-in-differences model to evaluate the impact of the DRES policy on corporate environmental, social and governance (ESG) performance. The main findings are as fourfold. (1) The DRES policy significantly enhances corporate ESG performance. (2) Regarding policy transmission pathways, it empowers enterprises to systematically improve their ESG performance through concept, terminal, source and voluntary governance. (3) Heterogeneity analysis reveals that the policy's efficacy is particularly pronounced in resource-based regions, among enterprises with low managerial myopia and limited analyst attention and within non-state-owned enterprises. (4) Economic consequence testing indicates that enterprises' improved ESG performance can enhance total factor productivity but concurrently increases enterprises' risk. Finally, the study proposes corresponding policy recommendations such as improving the incentive and restraint mechanisms of environmental management and implementing differentiated environmental governance strategies. © 2024 Elsevier B.V.