Environmental, social and governance ratings and corporate green innovation: Evidence from South Africa

We examined the effect of environmental, social and governance (ESG) ratings on corporate green innovation using a comprehensive panel data set of South African listed firms from 2010 to 2023. The findings reveal that ESG ratings significantly enhance green innovation, not only directly but also through two distinct mechanisms: mitigating managerial short-sightedness, attracting institutional investor attentiveness and improving inter-firm trade credit financing. Moreover, digitalisation positively moderates and amplifies the relationship between ESG ratings and green innovation, reinforcing firms’ capacity for sustainable innovation. Furthermore, heterogeneity analysis indicates that the positive impact of ESG ratings is stronger among non-state-owned enterprises and firms operating in low-polluting industries, where competitive pressures and reputational concerns play a more prominent role than environmental risk itself. The findings of this study offer policy-relevant insights into how ESG ratings can serve as levers for green transformation, particularly in emerging economies.