Unveiling the Impact of ESG Performance on Export Quality: Addressing Greenwashing

Sustainability standards have become crucial for ensuring the quality of trade. In this work, we investigate the role of ESG in trade transformation, and we find evidence suggesting that good ESG performance can improve export quality. From both production and transaction perspectives, this improving effect is mainly due to fostering green innovation, strengthening external oversight, and mitigating the “lemon market” problem. Also, the influence of ESG is contingent on the characteristics of the firm, industry, or region. Companies with low financial constraints, non-state ownership, low pollution, and technology intensity rely more on ESG capabilities. The digital application helps enhance the effects of ESG. Regarding region heterogeneity, the quality-enhancing effect of ESG is more pronounced for exports to developing regions. Moreover, we investigate the risks associated with ESG greenwashing and its regulatory frameworks. The findings indicate that greenwashing greatly undermines the efficacy of ESG, with government regulation being essential to combat it, whereas market-based regulation proves to be comparatively less effective. This paper proposes a China-specific strategy for developing countries to break free from the “low price-low quality” equilibrium trap by leveraging ESG as a pivotal mechanism, thereby addressing both domestic and international pressures related to social responsibility.