Influence of digitalisation on ESG outcomes and its performance across ownership structures

Abstract

Research background: In the context of increasing global emphasis on sustainability, understanding the factors influencing environmental, social and governance (ESG) performance is critical. Whilst state-owned enterprises (SOEs) typically face greater regulatory scrutiny than privately owned enterprises (POEs), the impact of ownership structure on ESG outcomes remains underexplored.

Purpose of the article: This study aims to assess how state ownership influences the ESG performance of Chinese firms. It seeks to compare the ESG performance of SOEs and POEs, explore the relationship between digitalisation and ESG performance and determine if digitalisation affects ESG outcomes differently in SOEs versus POEs.

Methods: The analysis uses a comprehensive panel dataset comprising 28,259 observations from 4,270 Chinese firms between 2009 and 2022. Robustness checks are conducted by including various fixed effects, employing the Oster (2019) methodology to assess the impact of unobservables, and utilising instrumental variable techniques to address potential reverse causality.

Findings & value added: SOEs demonstrate superior ESG performance compared with POEs, indicating state ownership’s positive role in driving sustainability. Digitalisation is positively associated with improved ESG performance, enhancing corporate sustainability initiatives. The beneficial impact of digitalisation on ESG performance is more pronounced in POEs than in SOEs, suggesting that digitalisation compensates for institutional pressures in SOEs. These findings are relevant beyond China, given that they offer insights for other countries that are seeking to balance state influence, corporate governance and digitalisation to achieve sustainability goals. Policymakers can use these insights to promote digitalisation as a strategy for enhancing ESG performance. Investors and managers can utilise the findings to refine their ESG strategies, recognising the differential impacts based on ownership and digitalisation.

Keywords

ownership structure, SOE, digitalization, ESG, state-owned enterprises, privately owned enterprises, China

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