Abstract
Scholars have long argued about whether improvements in environment, society, and governance (ESG) performance benefit a firm itself. To address this debate from a general perspective, we present empirical evidence on the positive correlation between a firm's ESG rating and its total factor productivity (TFP). We also explore three possible mechanisms that work within the relationship between ESG rating and TFP, in which each pillar (E, S, and G) of the ESG rating has its own function in influencing a mediator variable that eventually affects TFP. Our findings are of referential value for both policymakers and investors.
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