Impact of ESG Strategies and Green Innovation on Carbon Emission Efficiency and Firm Valuation of Companies Operating in Mandatory and Voluntary Regulatory Regimes: Insights From China, US , and the EU

Abstract

The objective of this study is to investigate the impact of environmental, social, and governance (ESG) performance and green innovation initiatives on reaching carbon emission efficiency (CEE) and firm valuation outcomes of companies operating in energy‐intensive industries by analysing if there is a difference between mandatory and voluntary regulatory regimes including China, US, and the EU. To examine the dynamic relationship between ESG performance, green innovation, CEE, and firm value, this study employed a two‐step System Generalized Method of Moments (GMM) estimator. Sustainability and financial reporting data were extracted from the LSEG Asset 4 database for the period between 2015 and 2024. The results show that there is no difference based on year, industry, and country level outcomes of mandatory or voluntary regulatory environments between energy‐intensive industries. Hence, the analyses were directed altogether. The findings exhibit that ESG performance and green innovation initiatives contributed to reaching CEE for companies operating in energy‐intensive industries in China, EU, and the US. ESG performance recorded a significant negative effect and green innovation initiatives had context‐dependent influence on firm valuation. This implies that in the short term, higher ESG expenditure may reduce market valuation whereas the results lose significance once industry and country effects are controlled. The findings provide a roadmap supporting sector‐specific environmental policies and regulations of ESG and green innovation in energy‐intensive industries where high exposure to sector‐specific environmental accountability and environmental standards diminish the difference between mandatory or voluntary regulatory environments.