The Effect of Environmental, Social, and Governance Performance on Enterprises' Green Innovation

ABSTRACT In the context of global net‐zero targets, sustainable development has become vital for industries aiming to optimize business models. Consequently, Environmental, Social, and Governance (ESG) performance is increasingly recognized as a driver of green innovation. This study empirically investigates the impact of ESG performance on green innovation and the moderating role of dynamic capabilities, utilizing panel data from Chinese A‐share listed firms between 2012 and 2021. The findings indicate that strong ESG performance significantly promotes green innovation. Moreover, an enterprise's dynamic capabilities positively moderate this relationship. Heterogeneity analysis reveals that the positive effect of ESG is more pronounced in state‐owned enterprises and those located in eastern and central regions. Conversely, no significant difference is observed between manufacturing and nonmanufacturing firms. These results highlight the critical importance of fostering dynamic capabilities while implementing ESG strategies. Ultimately, emphasizing the synergy between dynamic capabilities and ESG performance is essential for enterprises seeking to enhance green innovation and achieve long‐term sustainable development.