Substantive Compliance or Strategic Avoidance? The Influence of the Total Carbon Emissions Control Policy (TCP) on Corporate ESG Performance

Differentiating between authentic corporate compliance and strategic avoidance is of paramount importance for the evaluation of carbon-emission reduction policies. Leveraging China’s Total Carbon-Emission Control Policy (TCP) as a quasi-natural experiment, the influence of carbon regulations on corporate ESG performance was investigated in this study. Three significant patterns were identified by analyzing data of Chinese non-financial A-share listed companies from 2009 to 2023 through a difference-in-differences (DID) design. First, after the implementation of the TCP, the ESG performance of firms demonstrated an increase of 0.1309 on the Huazheng ESG index, indicating substantial compliance. Second, the positive impact is more obvious in state-owned enterprises, enterprises located in the eastern regions, large-scale enterprises, and industries with high pollution, which possess stronger institutional capacity and enforcement. Third, the mechanism analysis reveals that the TCP exerts opposing forces: it promotes ESG performance via green innovation while simultaneously increasing rent-seeking costs. The net positive effect implies that substantial compliance prevails. These findings passed robustness checks. The results suggest that carbon regulations can propel corporate sustainability when institutional design achieves a balance between targets and transparency, offering insights for the climate policies of emerging economies.