To address escalating environmental challenges and the energy crisis, traditional energy companies must initiate green transformations and enhance green innovation. ESG (Environmental, Social, and Governance) performance is vital for gauging enterprises’ sustainable development. Therefore, this study explores the relationship between the ESG performance of traditional energy companies and their extent of green innovation. It aims to investigate whether improving ESG performance can lead to enhanced green innovation within these companies. Therefore, this paper employs a fixed effect model to analyze the impact of ESG performance on green innovation among traditional energy companies, specifically focusing on those listed in the Chinese A-share market from 2013 to 2022. The results indicate that ESG performance significantly promotes green innovation within traditional energy companies. The mechanism test’s findings reveal that ESG performance impacts green innovation via three key pathways: innovation investment, external monitoring, and government subsidies. Furthermore, further analysis reveals that the intense market competition environment positively moderates the effect of ESG performance enhancement on the extent of green innovation. This implies that, by improving their ESG performance, traditional energy companies can enhance their green innovation and green transformation efforts. Moreover, this impact is particularly pronounced among state-owned enterprises.
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