Does China’s Carbon Emission Trading Policy Enhance ESG Performance in Construction Enterprises? Evidence from a Difference-in-Difference Estimation in China

Market-based environmental regulations are increasingly vital for driving green transitions. As a major construction economy and the world’s leading carbon emitter, China launched its Carbon Emission Trading System (CETS) to advance dual-carbon goals and pilot decarbonization in high-emission sectors. Using 2009–2021 data on A-share listed construction enterprises, this study employs a propensity score matching difference-in-differences (PSM-DID) approach to assess CETS’ impact on corporate Environmental, Social, and Governance (ESG) performance. Results show that CETS significantly improves construction enterprises’ ESG performance. Mechanism analysis identifies green technology innovation as a key transmission channel, with government subsidies positively moderating this effect. Heterogeneity analyses reveal stronger policy effects among state-owned enterprises and firms in eastern regions. These findings remain robust under alternative specifications, matching methods, and higher-order fixed effects. This study offers micro-level evidence on how market-based carbon regulations shape corporate sustainability through ESG, informing China’s carbon market refinement and global market-driven decarbonization efforts.