Green Finance Reform and Corporate ESG Performance: Mechanisms, Empirical Evidence, and Future Research Directions
DOI:
https://doi.org/10.70088/3gstnn28Keywords:
green finance, esg performance, sustainable development, green innovation, digital finance, corporate governanceAbstract
Green finance reform represents a crucial institutional mechanism designed to channel financial resources toward supporting the transition to a green economy and ensuring long-term sustainable development. Concurrently, corporate Environmental, Social, and Governance (ESG) performance serves as a fundamental indicator of a firm's operational sustainability and resilience in the contemporary business landscape. This paper provides a comprehensive review of the existing literature concerning the intersection of green finance reform and corporate ESG performance, subsequently developing a robust analytical framework that systematically links policy instruments, corporate strategic responses, and ultimate ESG outcomes. A critical synthesis of previous empirical studies reveals five primary channels through which green finance reform advances corporate ESG initiatives: alleviating financing constraints, stimulating green technological innovation, reinforcing institutional discipline, establishing robust corporate reputation systems, and integrating digital finance solutions. Despite these advancements, current scholarship exhibits several notable limitations, including the persistent irregularity of ESG measurement indicators, insufficient analytical differentiation among various policy instruments, incomplete identification of underlying micro-level transmission mechanisms, inadequate scholarly attention to the phenomenon of ESG greenwashing, and a lack of comprehensive international comparative analyses. To address these critical gaps, future research trajectories should prioritize the rigorous examination of diverse ESG indicators and their long-term dynamic effects on corporate value. Furthermore, subsequent investigations must explore firm-level heterogeneity, the transformative role of emerging digital technologies, and the implications of symbolic ESG disclosure practices to foster a more sustainable global economic paradigm.References
S. Duchêne, "Review of handbook of green finance," 2020.
S. Zadek, "Financing a just transition," Organization & Environment, vol. 32, no. 1, pp. 18–25, 2019.
M. A. Khan, H. Riaz, M. Ahmed, and A. Saeed, "Does green finance really deliver what is expected? An empirical perspective," Borsa Istanbul Review, vol. 22, no. 3, pp. 586–593, 2022.
M. S. Meo and M. Z. Abd Karim, "The role of green finance in reducing CO2 emissions: An empirical analysis," Borsa Istanbul Review, vol. 22, no. 1, pp. 169–178, 2022.
K. J. Arrow, "Economic welfare and the allocation of resources for invention," in *Readings in Industrial Economics: Volume Two: Private Enterprise and State Intervention*, London: Macmillan Education UK, 1962, pp. 219–236.
B. Scholtens, "Finance as a Driver of Corporate Social Responsibility: Bert Scholtens," Journal of Business Ethics, vol. 68, no. 1, pp. 19–33, 2006.
E. Cowan, Topical Issues in Environmental Finance, Economy and Environment Program for Southeast Asia (EEPSEA), 1998, no. sp199801t2.
J. E. Stiglitz and A. Weiss, "Credit rationing in markets with imperfect information," The American Economic Review, vol. 71, no. 3, pp. 393–410, 1981.
P. K. Ozili, "Green finance research around the world: a review of literature," International Journal of Green Economics, vol. 16, no. 1, pp. 56–75, 2022.
M. Spence, "Job market signaling," in Uncertainty in Economics, Academic Press, 1978, pp. 281–306.
G. Desalegn and A. Tangl, "Enhancing green finance for inclusive green growth: A systematic approach," Sustainability, vol. 14, no. 12, p. 7416, 2022.
S. S. Alharbi, M. Al Mamun, S. Boubaker, and S. K. A. Rizvi, "Green finance and renewable energy: A worldwide evidence," Energy Economics, vol. 118, p. 106499, 2023.
K. H. Wang, Y. X. Zhao, C. F. Jiang, and Z. Z. Li, "Does green finance inspire sustainable development? Evidence from a global perspective," Economic Analysis and Policy, vol. 75, pp. 412–426, 2022.
B. Kumar, L. Kumar, A. Kumar, R. Kumari, U. Tagar, and C. Sassanelli, "Green finance in circular economy: a literature review," Environment, Development and Sustainability, vol. 26, no. 7, pp. 16419–16459, 2024.
E. Rasoulinezhad and F. Taghizadeh-Hesary, "Role of green finance in improving energy efficiency and renewable energy development," Energy Efficiency, vol. 15, no. 2, p. 14, 2022.
E. Pollman, "The making and meaning of ESG," Harvard Business Law Review, vol. 14, p. 403, 2024.
A. A. Egorova, S. V. Grishunin, and A. M. Karminsky, "The Impact of ESG factors on the performance of Information Technology Companies," Procedia Computer Science, vol. 199, pp. 339–345, 2022.
P. R. Rau and T. Yu, "A survey on ESG: investors, institutions and firms," China Finance Review International, vol. 14, no. 1, pp. 3–33, 2024.
L. Pérez, V. Hunt, H. Samandari, R. Nuttall, and K. Biniek, "Does ESG really matter—and why," McKinsey Quarterly, vol. 60, no. 1, p. 9p, 2022.
M. Umar and A. Safi, "Do green finance and innovation matter for environmental protection? A case of OECD economies," Energy Economics, vol. 119, p. 106560, 2023.
S. Chen, Y. Song, and P. Gao, "Environmental, social, and governance (ESG) performance and financial outcomes: Analyzing the impact of ESG on financial performance," Journal of Environmental Management, vol. 345, p. 118829, 2023.
H. Naffa and M. Fain, "A factor approach to the performance of ESG leaders and laggards," Finance Research Letters, vol. 44, p. 102073, 2022.
D. Avramov, S. Cheng, A. Lioui, and A. Tarelli, "Sustainable investing with ESG rating uncertainty," Journal of Financial Economics, vol. 145, no. 2, pp. 642–664, 2022.
G. Cohen, "The impact of ESG risks on corporate value," Review of Quantitative Finance and Accounting, vol. 60, no. 4, pp. 1451–1468, 2023.
A. A. Elamer and M. Boulhaga, "ESG controversies and corporate performance: The moderating effect of governance mechanisms and ESG practices," Corporate Social Responsibility and Environmental Management, vol. 31, no. 4, pp. 3312–3327, 2024.
A. Clément, É. Robinot, and L. Trespeuch, "Improving ESG scores with sustainability concepts," Sustainability, vol. 14, no. 20, p. 13154, 2022.
M. Asif, C. Searcy, and P. Castka, "ESG and Industry 5.0: The role of technologies in enhancing ESG disclosure," Technological Forecasting and Social Change, vol. 195, p. 122806, 2023.
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Yixiao Yin (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
