How does environmental, social, and governance (ESG) performance affect carbon emission reduction in the manufacturing industry?

Interesting because: Although corporate ESG performance has received broad recognition, and CCR in China's manufacturing sector is critical to global climate mitigation, empirical evidence remains scarce on how ESG microscopically affects manufacturing firms in China. Existing studies have not sufficiently uncovered the dynamic effects of ESG ratings on corporate practices, nor have they thoroughly investigated underlying mechanisms—particularly those involving adverse pathways.

Theoretical value: This study empirically reveals three parallel mediators—green innovation, financing constraints, and risk-taking—that explain the intrinsic pathways through which ESG promotes CCR. More importantly, it reveals a negative moderating effect of market position, which conflicts with certain established findings. Based on resource dependence theory, we propose an innovative explanation. Specifically, less dominant firms are more motivated to pursue superior ESG performance to gain external support and facilitate emission reduction, thereby redefining the theoretical role of market positioning in ESG performance.

Practical value: Manufacturing firms should establish green innovation systems (e.g. R&D centers) and leverage ESG-financing tools (e.g. green bonds) to ease financial pressures. Market leaders are urged to set more ambitious carbon neutrality targets to counteract the complacency induced by their entrenched status. Governments should develop a differentiated policy system incorporating fiscal incentives, mandatory disclosure, and certification subsidies to encourage corporate emission reduction and foster green transformation through industrial chain collaboration.

Against this backdrop, reducing carbon emissions has emerged as a severe global challenge (Lin et al., 2023), driven by greenhouse gases (e.g. CO₂) that fundamentally cause climate warming and ecological crises (Li and Zhang, 2023; Liu et al., 2023b). Specifically, carbon emission reduction refers to the systematic reduction of human activities that release greenhouse gases (such as CO₂, CH₄, N₂O) into the atmosphere during production and daily life through technological, management, and policy means (Stern, 2007). It plays a crucial role in promoting the achievement of the United Nations' Sustainable Development Goals (SDGs), particularly affordable clean energy (SDG 7) and climate action (SDG 13).

Within this context, the manufacturing sector, as an essential engine of global economic activity, is also a significant source of carbon emissions, contributing nearly 38% of global carbon dioxide emissions. It accounts for nearly one-third of all global energy consumption (Acquah et al., 2021). Consequently, deep corporate carbon emission reduction (CCR) in manufacturing is essential not only for fulfilling global climate commitments (e.g. the Paris Agreement) and China's carbon neutrality goals, but also for ensuring sustainable economic development (Jin et al., 2022; Yin et al., 2023). Critically, low-carbon manufacturing has now become a de facto standard for global supply chain access (Gill, 2025). As a major carbon-emitting country in the world, Chinese manufacturing enterprises are facing increasingly strict carbon regulations and pressure to reduce emissions in their supply chains. Local governments in China urgently need scientific evidence to design differentiated incentive policies for different industries. Therefore, exploring the driving factors and impact mechanisms of CCR in Chinese manufacturing is urgent.

The concept of Environment, Social, and Governance (ESG) emerged as a result of the continuous deepening of environmental protection and awareness of sustainable development. Its core lies in emphasizing green, low-carbon and sustainable development. And it constitutes a domain of enterprises' sustainable development actions (López-Cabarcos et al., 2025). ESG performance defines and describes the non-financial outcomes enterprises hope to achieve (Baid and Jayaraman, 2022). Under the increasing environmental pressure, the ESG concept has received widespread attention from the capital market. From a corporate governance perspective, this externally formed governance mechanism, which spontaneously emerges in the market, is expected to have a profound impact on corporate behavior (Li and Xu, 2023). Studies have shown that ESG performance can effectively reduce the vulnerability of enterprise stock prices (Wang et al., 2023). The preference for capital for green, low-carbon and sustainable development will force enterprises to undergo low-carbon transformation (Li and Xu, 2023). Theoretically, enterprises that actively practice the ESG concept should pay more attention to environmental protection, which is expected to help CCR. However, in the research on the actual effects of ESG practices in reality, there are particular controversies regarding the actual effectiveness of ESG performance.

Proponents argue that corporate ESG reporting reduces information asymmetry between firms and stakeholders, thereby lowering operational risks (Hoepner et al., 2025). Enhanced transparency through ESG disclosures facilitates external monitoring of corporate governance and prompts greater environmental investment (Gu et al., 2012). Empirical studies indicate that ESG participation significantly reduces carbon emissions (Li and Xu, 2023), with ESG investment positively correlating with emission reduction outcomes (Cong et al., 2022). ESG performance drives green transformation in resource-intensive industries (Tan et al., 2024), enhances carbon efficiency at the industrial level (Qian and Liu, 2024), and improves the total factor productivity of enterprises (Yu et al., 2026). Conversely, critics contend that ESG practices may yield adverse effects. Many firms selectively disclose favorable non-financial indicators in ESG reports (Mendonça et al., 2025), and employ strategic language to obscure poor performance (Crilly et al., 2015), potentially concealing carbon-intensive activities through symbolic disclosures. Such negative impacts are empirically validated: ESG performance exhibits a significant negative correlation with green innovation in the U.S. energy sector (Cohen et al., 2020). ESG reports have no direct impact on CCR by large international companies (Luo and Tang, 2023). Higher ESG performance also lacks measurable CCR promotion (Treepongkaruna et al., 2024).

Although the ESG performance of enterprises has gained widespread recognition, and the CCR of China's manufacturing industry is crucial for addressing global climate issues, there remains a lack of empirical evidence at the micro level regarding the impact of ESG on the manufacturing industry in China. Given the controversy surrounding the validity of ESG ratings and the unique circumstances of China's manufacturing sector, it is crucial to focus on this field and examine the actual impact of enterprises' ESG performance on CCR. Existing studies mostly view enterprises' participation in ESG ratings as an exogenous event shock, or consider ESG investment as an independent variable, failing to fully reveal the dynamic impact of ESG performance grades on enterprises' practices, nor explore their mechanism in depth (especially the adverse path effect).

To address the shortcomings of the above research, this paper takes Chinese Shanghai and Shenzhen A-share listed companies as samples, focusing on whether the ESG performance of manufacturing enterprises can indeed effectively drive their actual CCR. If there is a driving effect, what is the specific mechanism? Does this relationship show heterogeneity depending on enterprise characteristics? Is there a potential negative transmission mechanism?

The subsequent sections of this paper are structured as follows. Section 2 focuses on establishing the theoretical background and research hypotheses. Section 3 describes the construction of the empirical model and the basics of the variables. Section 4 conducts the empirical study and analyses the results, including robustness tests, endogeneity tests, and examinations of influence mechanisms such as mediating and moderating effects. Section 5 further examines the heterogeneity of the ESG impact on CCR in the manufacturing industry. Discussion and managerial implications are set in Section 6. Section 7 concludes the paper.

To establish a comprehensive and credible theoretical foundation for our research hypotheses, we conducted a systematic search across leading academic databases, including Web of Science and Google Scholar. Highly relevant keywords aligned with the core concepts of our study were employed to identify pertinent literature. For instance: “ESG” OR “environmental, social, governance” AND “carbon emission reduction” OR “decarbonization” OR “climate change”. Priority was given to highly cited articles published in high-impact peer-reviewed journals. In addition, we performed forward and backward citation tracking of key publications to ensure the inclusion of both foundational theories and recent relevant studies. The selected references exhibit strong theoretical relevance and empirical rigor, thereby ensuring the logical coherence and robustness of our theoretical argument. This section mainly discusses the ESG performance and CCR impact as well as their influencing mechanisms, and formulates corresponding hypotheses.

The stakeholder theory (Freeman, 1984) posits that the construction of ESG shifts corporate objectives from singularly pursuing value maximization to balancing economic and societal values, effectively harmonizing the interests of owners, managers, employees, and other stakeholders. Its essence is the reintegration of the enterprise's relationship network and development resources (Donaldson and Preston, 1995). This integration is mainly driven by three core dimensions for CCR and sustainable development. Firstly, corporate ESG construction involves improving existing products, developing new ones, and enhancing industrial processes and management systems. Additionally, these initiatives enhance green management innovation (GMI) within enterprises while achieving SDGs aligned with economic and environmental benefits (Horbach and Rennings, 2012). Secondly, Signaling Theory (Spence, 1973) suggests that ESG enhances the corporate social responsibility image, thereby satisfying employees' self-worth and fostering internal trust and cooperation, thereby creating a virtuous cycle of resources (Zhao et al., 2015). More importantly, this accumulated social capital and established business network can effectively alleviate the risk of capital shortage faced by the enterprise (Zhang and Lucey, 2022). Thirdly, a good ESG governance system harmonizes the interests of managers and shareholders, mitigates the principal-agent problem (Jensen and Meckling, 1976), thereby enhancing the long-term vision and risk-taking willingness of managers and providing support for strategic investments such as carbon reduction that require forward-looking investment (Ahmed et al., 2021).

Furthermore, the resource dependence theory reveals how an enterprise's ESG performance gains external resource support (Pfeffer and Salancik, 1978). According to this theory, the unique and difficult-to-imitate key strategic resources and capabilities external stakeholders possess are crucial for green transformation and carbon reduction in the manufacturing industry. Strong ESG performance conveys positive signals to governments and investors (Lys et al., 2013), meeting stakeholders' environmental expectations and securing resource support from key entities, such as governments and investors, for corporate green transitions. Therefore, enterprises with excellent ESG performance are more likely to obtain policy support from the government (such as subsidies, tax incentives), thereby obtaining crucial resource and capability support, accelerating their green transformation and CCR process (Feng and Wu, 2021). Based on this, we propose the basic hypothesis of this paper.

Corporate GMI is a prerequisite for realizing CCR. Good ESG performance can enhance GMI, thereby increasing the internal level of green management and promoting CCR (Chen and Jin, 2023). The better ESG performance of enterprises increases the level of GMI, which raises the level of GMI (Zhao et al., 2015). This reduces the adverse impact on the environment and promotes sustainable business practices (Li et al., 2018). According to the Resource Dependence Theory and Stakeholder Theory, GMI can be seen as a form of innovation. It innovates resource allocation to help firms respond to changes in the external environment and meet the expectations of stakeholders such as non-governmental organizations, consumers, and governments (Sun et al., 2023). Therefore, it provides a foundational guarantee at the management level for corporate green transformation and CCR. Based on the above analysis, this paper puts forward the following hypotheses:

Financing constraints are one of the main obstacles to corporate investment in carbon emission reduction. Good ESG performance can alleviate these financing constraints by alleviating financing constraints (Zhang and Lucey, 2022). This helps to mitigate financing constraints, enabling firms to secure more investment. On the one hand, through ESG construction, companies can build a responsible image and enhance the quality of financial information disclosure, reducing information asymmetry and increasing transparency, which in turn earns the trust and strategic resource support of stakeholders (Donaldson and Preston, 1995; Zhang and Lucey, 2022). This makes it easier for companies to obtain government subsidies and credit financing (Zhao and Zhang, 2024). On the other hand, ESG construction conveys positive signals reflecting good business conditions (Huang, 2021). The disclosure of such information reduces earnings management and financial opportunism (Rezaee and Tuo, 2019), decreases operational and default risks, lowers financing costs, and facilitates the acquisition of funds for CCR. Based on the above analysis, this paper puts forward the following hypotheses:

A corporate willingness to take risks is a key determinant of the level of investment in CCR. ESG construction helps to mitigate principal-agent conflicts between corporate owners and managers and between insiders and outsiders (Ahmed et al., 2021). On the one hand, the extent of management's focus on long-term development and value creation is reflected through social responsibility information compared to financial criteria (Banker et al., 2000). On the other hand, according to Signaling Theory, ESG practices extend corporate responsibility towards shareholders to all stakeholders and convey outwardly the long-term orientation of corporate business objectives (Flammer, 2018). These all contribute to establishing s business cooperation and enhancing external stakeholders' trust and risk tolerance. Additionally, external investors are more likely to attribute the short-term uncertainties of CCR investments to external factors rather than corporate opportunistic behavior (Baid and Jayaraman, 2022). This improves the risk-taking ability of enterprises and creates a more tolerant environment to promote CCR. Based on the above analysis, this paper proposes the following hypotheses:

Companies with high market positions tend to have stronger market power and resource control. This advantage may weaken the promoting effect of an enterprise's ESG performance on CCR. Firstly, combined with the above analysis, a better ESG performance can improve CCR by alleviating financing constraints. Market-leading corporations experience reduced financing constraints, predisposing them to prioritize short-term returns over long-term environmental investments (Apergis et al., 2022; Liu et al., 2023a). This capital allocation tendency diminishes their ESG performance engagement relative to industry peers. Secondly, from the perspective of corporate governance structure, enterprises with higher market positions may have a negative role in ESG performance due to their complex governance structure and internal conflicts of interest (Nekhili et al., 2020). Finally, market-dominant enterprises usually have a larger operational scale, which exacerbates their ability to withstand the pressure of economies of scale (Zhang and Cristiano, 2009). Based on the above analysis, market-leading enterprises often prioritize maintaining their existing market share over investing in environmental technology and making sustainable development commitments.

In highly competitive industries, enterprises with a lower market position face significant operational vulnerability due to resource constraints and survival pressures (Virglerova et al., 2021). To break through the competitive barriers, management often views ESG as a strategic tool for differentiation. They are investing in sustainable projects (such as CCR technologies) to reduce environmental compliance risks and avoid cost impacts from policy penalties. Also, they are enhancing the corporate reputation capital through ESG performance to attract long-term-oriented green investors (such as ESG-themed funds) and alleviate financing constraints. This legitimacy acquisition behavior (Suchman, 1995) enables weaker enterprises to incorporate CCR into their full life cycle management more actively, ultimately achieving the dual goals of risk mitigation and long-term stable development (Villamil and Hallstedt, 2020). Based on the above analysis, this paper proposes the following hypotheses:

Combining the above analysis, we construct the theoretical model of this study (Figure 1).

Based on the research hypotheses from theoretical analysis, this study develops an empirical model to rigorously test these hypotheses and answer the research questions. Figure 2 progressively presents the research methodology. This section mainly elaborates in detail on the establishment of the empirical model, as well as the definition of relevant variables, sample selection, and data sources.

This study adopts a baseline model, mediation effect model, and moderating model to examine the effects and mechanism of ESG performance on CCR in the manufacturing industry.

The following model (1) is constructed to examine the impact of ESG performance on CCR.

where $CCRi,t+1$ represents the carbon emissions reduction of company $i$ in year t, $ESGi,t$ denotes the corporate ESG performance. $Controlsi,t$ denotes the enterprise-level control variables. $Industryi$ and $Yeart$ are fixed effects for industry and year, respectively. $εi,t$ is a random disturbance term.

To examine the mediation mechanism of ESG performance on CCR, we construct the following models (2) and (3):

Where $VARi,t$ denotes mediation mechanism variables, including GMI, financing constraints, and risk-taking level. All other variables mentioned earlier in the analysis remain consistent.

To examine the moderating effect of ESG performance on CCR, we construct the following model (4):

where Pcm_i,t denotes the moderating variable, which is the enterprise's market position. All other variables mentioned earlier in the analysis remain consistent.

In this study, the Sino-Securities ESG Rating Index was chosen as the independent variable (ESG) (Feng et al., 2021). Developed within a globally recognized framework, it employs a top-down rating system that has been widely used by financial institutions and academic studies following rigorous data collection and analysis (Pan et al., 2024). The index covers all A-share listed companies, with quarterly ratings classified into nine tiers. ESG scores are quantified by first assigning values from 1 to 9 based on each quarterly rating, then averaging annual scores per firm. In this paper, the explanatory variables are front-loaded for one period to control the lagged impact of ESG on CCR and the endogeneity due to reverse causality. In addition, this paper also considers the use of Bloomberg ESG ratings as a robustness test. We calculate the corporate operating revenue generated per carbon emissions and use its logarithm to measure CCR (Pan et al., 2024). We use operating income to measure carbon reduction performance. First, the likelihood that non-operating income is unrelated to carbon emissions is high (Elnahass and Doukakis, 2019). Secondly, other corporate revenues come from by-products of the production process and account for a tiny share of the total revenues, which is difficult to calculate in the corporate annual reports. The specific formula for calculating CCR is as follows.

This paper involves three mediating variables and one moderating variable, including GMI, financing constraints (KZ), risk-taking level (Risk), and market position (Pcm). GMI is measured by the presence of IS14001, ISO9001 certification, environmental education and training, environmental management system, and environmental exceptional action scores in the environmental regulation certification disclosure form of listed companies (Zhao et al., 2015). Financing constraints are represented by the KZ index (Kaplan and Zingales, 1997), the higher the index, the stronger the corporate financing constraints. The risk-taking level is expressed by dividing the corporate R&D expenditures by the corporate total assets to measure the corporate level of investment in risky projects (Kothari et al., 2002). Lerner's index measures market position (Peress, 2010), it is (revenue - operating costs - selling expenses - administrative expenses)/revenue. The larger the Lerner's index, the stronger the pricing power of the corporation in the industry and the higher the market position.

Regarding the control variables, this study accounted for enterprise characteristics and factors that affect carbon emissions reduction, following prior research (Cong et al., 2022; Xu and Zheng, 2024; Tan et al., 2024). (1) Leverage (Lev) measures an enterprise's financial structure and risk level. (2) Enterprise return on total assets (ROA) measures the profitability of resource-based enterprises. (3) Fixed assets ratio (FixR), evaluates an enterprise's asset allocation and operational efficiency. (4) Shareholding nature (Soe), 1 for state-owned enterprises, 0 for non-state-owned enterprises. (5) Duality, If the CEO and the chairman are the same people, the value is 1; otherwise, it is 0. (6) Independent director ratio (Indep) indicates the proportion of independent directors on the company's board of directors. (7) Enterprise scale (Size), expressed as the natural logarithm of the total assets of enterprises. (8) Age of the enterprise (Age), the year the enterprise's listing year spans to the sample year. (9) Growth opportunity (Growth), expressed as the operating income growth rate. (10) Corporate value (Tobin Q), reflects the ratio of a company's market value to the replacement cost of its assets.

This paper selects Chinese Shanghai and Shenzhen A-share listed manufacturing companies from 2013 to 2022 as the research sample. To ensure result reliability, the data are processed as follows: (1) excluding Special Treatment (ST) firms to avoid financial data distortion; (2) removing samples with missing data to maintain analysis validity; and (3) winsorizing continuous variables at the 1% level to reduce extreme value effects. The final sample comprises 348 firms. Corporate ESG performance data are sourced from the Wind database's Sino-Securities ESG Rating Index, while other financial and carbon performance data come from the CSMAR database.

Table 1 shows the descriptive statistics results. We can see that the mean of enterprise ESG performance is 4.251, the maximum value is 8, and the standard deviation is 0.930, which indicates that there is a large difference in the ESG performance of enterprises in this study. The mean CCR level scores 0.901, indicating prevalent under-prioritization of emission reduction among manufacturers. Notably, this transitional pattern reflects the industry's ongoing shift from traditional factor-driven models to green development paradigms. Among the control variables, financial leverage, proportion of fixed assets, enterprise size, number of years on the market, enterprise growth, and enterprise value also differ greatly among the sample companies. In addition, the correlation coefficients of the variables are lower than 0.50, and the average value of the variance inflation factor (VIF) of the variables in this paper is less than 10, so there is no serious multicollinearity problem in the model.

Table 2 shows the baseline regression results of ESG performance on CCR in the manufacturing industry. Column (1) shows only the regression results of the core explanatory variable, i.e. ESG performance, and the results show that ESG performance positively affects CCR in the manufacturing industry at the 5% level. In column (2), we control for year-fixed and industry-fixed effects on top of column (1), and the regression results pass the significance test at the 1% level. Column (3) adds control variables based on column (2), and the results show that the ESG coefficient is 0.126 and is significant at the 1% level. It indicates that corporate ESG performance can significantly enhance carbon emission levels. That means good ESG performance improves CCR in the manufacturing industry, supporting our primary hypothesis 1.

In addition, among the control variables, enterprise age (Age) hurts CCR in the manufacturing industry. It indicates that as the enterprise grows older, it may lack the motivation to reduce carbon emissions due to the increasingly stable cash flow, growth in scale leading to redundancy of institutions and personnel, and insufficient motivation for green transformation in the manufacturing industry. The fixed assets ratio (FixR) coefficient is significantly negative, indicating that conventional capital investment on green transformation investment has a crowding-out effect and is not conducive to CCR. Enterprise size (Size) positively impacts CCR, and the heterogeneity of the impact of enterprise size on CCR needs to be tested.

ESG construction helps build a responsible social image and win the public's trust in the enterprise. Therefore, enterprises have incentives to exaggerate ESG performance to facilitate their self-interested behavior. Accordingly, rating agencies may be misled into giving different ratings. To avoid the misjudgment of ESG performance due to the quality of ESG disclosure, we further adopt the Bloomberg ESG score data as the key explanatory variable to re-estimate model (1), and the regression results are shown in column (1) of Table 3. It can be seen that the sample size of Bloomberg ESG is less than that of Sino-Securities ESG, and the sample coefficient of Bloomberg's ESG is 0.00913, which is significant at the 10% level. The results of the smaller samples still show that the ESG performance presents a robust promotion effect on CCR. In addition, this paper further adopts the environmental, social, and governance sub-scores of the Bloomberg ESG Disclosure Index to measure corporate ESG performance dimensions. It conducts robustness tests, and the test results in columns (2) to (4) of Table 3 still support the research hypothesis that corporate ESG performance and its dimensions can significantly improve CCR in the manufacturing industry.

In the baseline regression, the explanatory variable is the CCR in the lag period. However, we cannot exclude some faster or slower progress of CCR measures, and the impact of ESG on different green transformation projects varies. This paper further lags the explanatory variables by two to three periods in the regression, and the results are shown in columns (5) to (6) of Table 3. The coefficients of ESG performance are still significantly positive, indicating that ESG performance can promote CCR in the manufacturing industry, which confirms that the conclusions of this paper are robust to different lag periods.

As CCR can promote green transformation and thus contribute to sustainable development, it may also positively impact corporate ESG performance. In other words, firms with a high level of CCR may also have better ESG performance. In addition, corporate ESG performance may be affected by certain unobserved factors. For example, corporate culture or corporate reputation. However, these factors may, in turn, be related to corporate green transition and CCR. Firms with good corporate culture or corporate reputation are more likely to proactively publish Corporate social responsibility(CSR) reports to obtain higher ESG performance scores (Xu and Zheng, 2024). Thus, there may be endogeneity problems due to bidirectional causality and omitted variables. Based on this, this paper mainly adopts the instrumental variable (IV) and Propensity Score Matching (PSM) methods to mitigate the endogeneity problem, and Table 4 reports the test results of the endogeneity problem.

Baseline regression front-loads the explanatory variables by one period, which, to a certain extent, can solve the endogeneity brought by reverse causality. To further address possible endogeneity in the model, this paper attempts to construct an IV. The annual industry mean of ESG performance of the city where the firm is located is used as an IV for the corporate ESG performance (Tang, 2022). The regression results are shown in columns (1) and (2) of Table 4. The 2SLS first-stage regression yields statistically significant positive coefficients at the 1% level, effectively rejecting the weak instrument hypothesis. This confirms a strong correlation between explanatory variables and instrument variables, validating the appropriateness of our IV selection. Second-stage estimates demonstrate persistent significance: even after rigorous endogeneity control, corporate ESG performance maintains positive coefficients significant at the 5% level. These robust results substantiate ESG's material impact on CCR when accounting for endogenous factors.

This paper draws on the use of the PSM approach to control the sample selection bias problem. First, corporate ESG performance is grouped according to annual and industry medians, and the grouping variables are constructed as treatment and control groups. If the variable is greater than the median, it is the treatment group and less than the median, it is the control group. Then, we selected the control variables of the baseline regression as covariates and matched them using the 1:1 put-back nearest-neighbor caliper matching method (caliper of 0.05). After matching, there is no significant difference between the means of the two sets of covariates, and the results satisfy the balance assumption. Finally, the regression is rerun with the matched samples. The results are summarized in column (3) of Table 4. Column (3) points out that the coefficient on ESG is significantly positive at the 1% level, indicating that ESG performance still contributes significantly to manufacturing CCR after applying PSM to the sample.

Resource dependence theory and stakeholder theory state that a better ESG performance can improve the corporate GMI level by optimizing resource allocation and green management, promoting CCR. Therefore, this section verifies whether ESG performance can promote CCR through enhancing GMI. Columns (1) to (3) of Table 5 report the results of the mediation effect of GMI based on the stepwise regression method. Column (1) indicates that the coefficient of ESG is 0.124 and significant at the 1% level, which suggests that ESG performance can significantly contribute to the promotion of CCR. Column (2) indicates that the coefficient of GMI is 0.157 and significant at the 1% level, which suggests that ESG performance can significantly increase the level of GMI. In the regression results in column (3), the coefficient of ESG is significantly positive, and the coefficient of GMI is significantly positive. This suggests that increasing the level of GMI of firms will strengthen the facilitating effect of ESG performance in promoting CCR. The above regression results show that GMI mediates the relationship between ESG performance and CCR, and research hypothesis 2 is verified.

Stakeholder and resource dependence theories indicate that good ESG performance can enhance corporate information transparency and reduce operational risk. The above can lead to more external financial support, alleviate corporate financing constraints, and thus increase corporate investment in green transformation. Therefore, this section verifies whether ESG performance can promote CCR by alleviating financing constraints. Columns (4) to (5) of Table 5 report the results of the mediation effect of financing constraints based on the stepwise regression method. Column (4) indicates that the coefficient of financing constraints is −0.227 and is significant at the 1% level. The result suggests that ESG performance can significantly alleviate firms' financing constraints. In the regression result of column (5), the coefficient of ESG is significantly positive, and the coefficient of financing constraints is significantly negative, which indicates that the reduction of corporate financing constraints can make ESG performance have a significant promotion effect on CCR. Based on the above regression results, corporate financing constraints mediate the relationship between ESG performance and CCR, and research hypothesis 3 is verified.

ESG construction mitigates principal-agent conflicts between owners/managers and insider/outsider stakeholders, while fostering a more tolerant corporate development environment. This governance effect enhances organizational risk appetite, thereby driving green investment initiatives and carbon reduction commitments (Baid and Jayaraman, 2022).To a certain extent, ESG construction can offset investment failures' political and economic impacts. Accordingly, the management can realize the longer-term development goals and the economic and social values through green and other risky investments. Therefore, this section verifies whether ESG performance can promote CCR by increasing risk-taking levels. Columns (6) and (7) of Table 5 report the results of the mediation effect mechanism test of the risk-taking level based on the stepwise regression method. The regression results in column (6) show that the ESG coefficient is 0.001 and significant at the 1% level, indicating that ESG performance can significantly improve risk-taking levels. The regression results in column (7) show that the ESG coefficient is 0.115 and significant at the 1% level, indicating that by improving the risk-taking level, ESG performance has a significant promotion effect on CCR. Based on the above regression results, the risk-taking level plays a mediating role in the relationship between ESG performance and CCR, and research hypothesis 4 is verified.

This section explores the moderating role of market position in the effect of ESG performance on CCR. Column (8) of Table 5 reports the results of the test of the moderating effect of market position. The results show that the coefficient of the effect of ESG performance on CCR is 0.039 and significant at the 5% level, and compared with the correlation coefficient of 0.124 in Column (8), the promotion effect of ESG on CCR is significantly lower. That means market position significantly reduces the promotion effect of ESG performance on CCR. The regression coefficient of the interaction term between ESG performance and market position is −0.327. It is significant at the 1% level, indicating that market position has a negative moderating effect on the relationship between ESG performance and CCR. In other words, the higher the market position, the less significant the contribution of ESG performance to CCR is. Market position hinders the contribution of ESG performance to CCR. Research hypothesis 5 verified.

ISO 9001 certification fosters corporate green transformation through sustainable operations, promoting carbon reduction (Soubihia et al., 2015). It establishes stable production processes to reduce waste and enhance resource efficiency while driving further optimization of eco-friendly operations for sustainable development. Based on this, this paper further verifies the heterogeneity of quality management certification systems in terms of the impact of ESG performance on manufacturing CCR. We group the sample according to whether they are ISO 9001 quality management certified or not and re-estimate the baseline model. Columns (1) and (2) of Table 6 demonstrate the results. The ESG coefficient with ISO 9001 quality management certification is 0.081 and significant at the 5% level, while the ESG coefficient without certification is 0.044 and significant at the 10% level. Therefore, regardless of whether an enterprise has passed ISO 9001 quality management certification or not, ESG performance has a significant contribution to CCR. ISO 9001-certified enterprises exhibit significantly higher ESG coefficients than non-certified counterparts. Consequently, ESG performance exhibits a more pronounced impact on CCR among ISO 9001-certified firms.

ISO14001 environmental management system certification reflects corporate environmental protection concepts and green perceptions. Enterprises that have passed the ISO14001 environmental management certification tend to have more comprehensive environmental management systems (Ong et al., 2022), and their ESG performance may have a stronger driving force on the promotion of CCR. Based on this, this paper further verifies the heterogeneity of environmental management certification systems in terms of the impact of ESG performance on CCR in the manufacturing industry. We group the sample according to whether they are ISO 14001 environmental management certified or not and re-estimate the baseline model. Columns (3) and (4) of Table 6 demonstrate the results. The ESG coefficient with ISO 14001 environmental management certification is 0.087 and significant at the 10% level, while the ESG coefficient of firms without certification is 0.034. Therefore, the ESG performance with ISO14001 certification has a more obvious effect on CCR.

The corporate scale is an important factor affecting the development ability of enterprises. Large firms possess capital/technology advantages but lack motivation for CCR, while SMEs face financing constraints. Enhancing ESG performance not only alleviates financing pressure for SMEs but also attracts technical talent to optimize human capital, thereby promoting carbon reduction. Based on this, this paper further verifies the corporate scale heterogeneity of the impact of ESG performance on CCR in the manufacturing industry. The baseline model is re-estimated by defining enterprises larger than the median corporate scale of the sample as large-scale enterprises and the remaining sample as small-scale enterprises. As shown in columns (5) and (6) of Table 6, the ESG coefficient of large-scale enterprises is 0.075 and significant at the 5% level, while the ESG coefficient of small-scale enterprises is 0.030. Therefore, it is concluded that in large-scale enterprises, the promotion is more significant for ESG on CCR.

This study examines how ESG performance influences CCR in manufacturing, focusing on the mediating roles of GMI, financing constraints, and risk-taking, as well as the moderating role of market position. Using 348 firm-level observations, our empirical analysis supports all hypotheses. Table 7 presents the specific research results.

As shown in Table 7, ESG performance significantly promotes CCR in the manufacturing industry at the 1% level, a result that holds after robustness and endogeneity tests, thus confirming hypothesis 1. This result is consistent with previous research findings (Qian and Liu, 2024; Li and Xu, 2023; Cong et al., 2022). Strong ESG performance emphasizes environmental improvement, social responsibility, and corporate governance, thereby encouraging the broad application of green innovation technologies (Zhai et al., 2022). This study addresses certain gaps in empirical research, which often treat ESG involvement as an outcome of exogenous shocks (Cohen et al., 2020; Treepongkaruna et al., 2024). This paper further uses ESG performance as a proxy variable and focuses on the manufacturing industry in China, more accurately verifying the relationship between the two. Different from the research result that the ESG indicators of the US energy industry are negatively correlated with innovation (Cohen et al., 2020), our evidence centred on the Chinese manufacturing industry indicates ESG has a significant promoting effect in CCR.

Second, GMI, financing constraints, and risk-taking significantly mediate ESG's impact on CCR at the 1% level, confirming hypotheses 2-4. This aligns with existing literature, indicating that robust ESG performance promotes low-carbon production, thereby enhancing GMI and CCR (Zhao et al., 2015). It also signals positive corporate health to investors and creditors, easing financing constraints and securing green investment support (Zhai et al., 2022).Additionally, as a form of non-financial disclosure, ESG performance conveys unique firm-level information to external stakeholders. This alleviates information asymmetry between firms and creditors/investors (Yang et al., 2021), enabling more accurate assessment of credit risk and enhancing investor confidence. Consequently, it reduces risk compensation premiums demanded by capital providers (Atif and Ali, 2021), thereby lowering debt/equity financing costs, easing financing constraints, and ultimately decreasing default risk while increasing corporate risk-taking capacity.

Third, market position negatively moderates this relationship at 1% significance. Our hypothesis 5 has been verified. This is different from previous studies (Chai et al., 2024). This might be because enterprises with a stable market position are more inclined to use their market power to maintain their competitive advantage (Drempetic et al., 2020). Previous studies have indicated that in countries with imperfect market systems, enterprises with high market positions may focus more on short-term financial performance rather than prioritizing ESG performance (Ghoul et al., 2017). At the same time, enterprises with high market positions are not constrained by external factors such as financing restrictions and risk-taking levels, and have a good image and reputation. They have intrinsic motivation and the ability to achieve carbon reduction and green transformation (Zhao and Zhang, 2024), and do not necessarily need to rely on ESG performance advantages. On the contrary, according to the resource dependence theory (Pfeffer and Salancik, 1978), enterprises with low market positions need to build external stakeholder alliances through ESG, and carbon reduction is the intersection of the current core demands of the government and investors. Therefore, enterprises with a relatively low market position are facing intense competition for resources. They may increase their investment in ESG practices, aiming to enhance their ESG performance to build a good image (Orsdemir et al., 2019), thereby seeking vitality in the fierce competitive environment and promoting carbon emission reduction of the enterprises.

Finally, this paper conducts a more in-depth analysis of the heterogeneity of the impact of ESG performance on CCR. The results show that, ESG's CCR effect is stronger in firms with quality/environmental certifications and large enterprises. This might be because the quality management system provides an operational path for ESG practices through standardized processes and continuous improvement mechanisms, converting abstract ESG principles into specific emission reduction actions (Jabbour et al., 2015). Environmental management certification strengthens the governance effect of ESG through compliance frameworks and resource complementarity (Ronalter et al., 2023; Zhang et al., 2024). Additionally, from the perspective of resource allocation, large enterprises have more abundant financial reserves and technical capabilities, enabling them to bear the upfront costs of ESG investments and achieve a multiplier effect on emission reduction benefits through economies of scale (Wang et al., 2024; Gao and Chen, 2021).

Reducing carbon emissions in the manufacturing sector is a key driving force for achieving the SDGs (particularly the core goal of climate action - SDG 13). Based on the above empirical results and related discussions, we have put forward the following management implications for enterprises and relevant government departments.

Manufacturing enterprises should deeply integrate ESG practices with strategic operations. Firstly, enterprises should prioritize the establishment of a GMI system (such as setting up a low-carbon technology research and development centre) to strengthen the core mechanism of emission reduction. This connection between industrial innovation and emission reduction technologies is conducive to achieving SDG9. At the same time, enterprises should incorporate ESG ratings into their financing plans (such as issuing green bonds), actively alleviate external funding constraints, and support long-term emission reduction investments by optimizing the risk management framework. This reflects the dual goals of responsible consumption and production as well as climate action (SDG 12 & 13). Moreover, leading enterprises in the market must be vigilant against the inherent risks caused by regulatory effects. They should actively set industry-leading carbon neutrality targets to counteract the negative regulatory effects of their market position demonstrating leadership in advancing SDG 13. Finally, enterprises that have obtained quality/environmental certifications can accelerate the demonstration of emission reduction technologies. Additionally, large manufacturing enterprises need to assume the responsibility of leading the industrial chain and promote the emission reduction of the entire industry through ESG cooperation in the supply chain, thereby effectively promoting the realization of SDG 13.

Government departments should build a differentiated policy system. Firstly, the government should use fiscal and tax incentives (such as green innovation subsidies) and mandatory ESG disclosure systems to amplify the effectiveness of CCR mechanisms and provide special support for financing constraints. These policy tools serve climate and industry goals (SDG 13 & 9). At the same time, policymakers must implement precise policies based on heterogeneity conclusions. Regulatory authorities should popularize environmental management system certifications (such as providing ISO14001 certification subsidies to small and medium-sized enterprises) and incorporate the ESG emission reduction performance of leading enterprises into the “chain leader” assessment, using their market position to drive industrial upgrading. Ultimately, both the government and enterprises need to collaborate through institutional coordination (such as linking carbon quota allocation to ESG performance) to jointly promote the green transformation of the manufacturing industry (SDG 9) and the achievement of SDG 13.

On the road to carbon neutrality, China's manufacturing industry plays an important role in reducing carbon emissions, realizing the “dual-carbon” goal, and promoting the green and low-carbon development of the economy and society. Based on the panel data of China's A-share listed companies in Shanghai and Shenzhen from 2013 to 2022, we investigate the relationship between ESG performance and CCR and the influence mechanism. The results show that ESG performance can significantly contribute to CCR in the manufacturing industry. This conclusion is still valid after the robustness test and endogeneity test. The mechanism test shows that ESG performance mainly improves CCR by increasing GMI, alleviating financing constraints, and enhancing risk-taking levels. The reason is that ESG construction improves the internal green operation and management of enterprises, conveys responsible social image information to stakeholders, helps to improve the trust between cooperative subjects, resolves principal-agent conflicts in the related interest network, and obtains resources to support CCR. In addition, the results show that market position plays a negative moderating role in the impact of ESG performance on carbon emission reduction, which may be because enterprises with lower market positions need good ESG performance to enhance their corporate reputation and social image, to seek survival in the competitive environment. Further analysis reveals that the contribution of ESG performance to CCR in the manufacturing industry is more pronounced in the case of quality management certification, environmental management certification, and large-scale enterprise. The findings of this study provide empirical evidence for ESG construction guidance provided by the government, firms participating in ESG programs, and investors seeking ESG investments to contribute to the CCR.

This paper has some limitations. Although this study has fully considered Chinese manufacturing firms, due to data collection, it prioritizes the study of Chinese A-share listed manufacturing firms. It has not considered small and medium-sized enterprises' CCR and green transformation. Future research may further explore the comparison of green transformation of manufacturing industries in different countries to improve the comprehensiveness and systematicity of the study. In addition, exploring the green transformation of manufacturing industries from different market environments is another area that deserves in-depth research.