The Dual Path of the Impact of Digital Technology Adoption on ESG Performance

Abstract

The rapid advancement of digital technologies presents new opportunities and challenges for companies concerning their environmental, social, and corporate governance (ESG) performance. As organizations increasingly prioritize sustainable development, it becomes essential to investigate the role of digital technology in enhancing ESG outcomes. Utilizing data from 35,650 Chinese listed companies spanning 2009 to 2021, this study employs a double fixed-effects model to analyze the dual pathways through which digital technology adoption influences ESG performance. The findings indicate that the adoption of digital technologies positively affects both current and future ESG performance; however, this impact diminishes over time. The breadth and depth of digital technologies offer complementary approaches to improving ESG performance. Specifically, the breadth of digital technologies enhances ESG performance by improving information transparency and alleviating financing constraints, while the depth of digital technologies further bolsters firms’ ESG initiatives by increasing operational efficiency. Additionally, this study reveals significant variations in the impact of digital technologies on ESG performance across different sectors, particularly between manufacturing and highly polluting firms. Notably, the adoption of digital technologies fosters opportunities for the standardization of information regarding firms’ ESG ratings.

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