Air Pollution and Corporate Sustainability Strategies: Asymmetric ESG Impacts in China

ABSTRACT Air pollution poses a significant challenge to corporate sustainability, yet its effects on Environmental, Social, and Governance (ESG) performance remain underexplored from a strategic perspective. This study examines the asymmetric impact of fine (PM2.5) and ultrafine (PM1.0) particulate matter on the ESG scores of 19,056 Chinese manufacturing firms between 2010 and 2020. Grounded in risk perception and causal attribution theories, we apply the method of moments panel quantile regression (MMPQR) and the system GMM (SYS‐GMM) estimator to capture distributional effects and address potential endogeneity. The results reveal that air pollution has a stronger negative effect on firms with higher ESG scores, with the most pronounced impacts observed in the Social and Governance dimensions. These findings suggest that sustainability leaders face disproportionate reputational and operational risks under environmental stress. We discuss strategic implications, highlighting the need for targeted policy incentives, stronger governance frameworks, and sustained corporate commitments to mitigate these asymmetric effects. Integrating environmental constraints into corporate strategy enables firms to enhance resilience and support broader sustainable development goals.