Can the Inclusiveness of Foreign Capital Improve Corporate Environmental, Social, and Governance (ESG) Performance? Evidence from China

Abstract

Foreign direct investment (FDI) has become an important factor influencing corporate operational strategies, yet the impact of its inclusiveness on corporate environmental, social, and governance (ESG) performance remains unclear. In this study, the correlation of city-level FDI inclusiveness with corporate-level ESG performance was investigated based on data from 1258 Chinese A-share listed companies between 2011 and 2021. The effects of FDI inclusiveness on corporate ESG performance and its underlying mechanisms were investigated. The findings indicate that an increase in FDI inclusiveness significantly improves corporate ESG performance. Additionally, the moderating role of corporate competitive advantage and urban entrepreneurial vitality was analyzed, and the findings indicate that an increase in urban FDI inclusiveness significantly improves corporate ESG performance. Managerial green attention and corporate innovation capability play intermediary roles in the overall impact, with the total impact being positively moderated by investor attention. Furthermore, the influence of FDI inclusiveness on corporate ESG performance exhibits significant heterogeneity resulting from variations in digital policies, environmental policies, and ownership structures.

1. Introduction

With rapid economic development, the conflict between economic benefits and ecological conservation has resulted in green economies and sustainable development becoming increasingly central to nations. In 2020, the Chinese government set explicit development goals to achieve “peak carbon” by 2030 and “carbon neutrality” by 2060 [1]. As a result, environmental protection and social governance have gradually become focal points for managers and investors. Against this backdrop, many corporate managers recognize that pursuing short-term financial goals under traditional business management models is no longer a viable strategy for meeting the demands of stakeholders [2]. The question of enhancing a company’s contribution to social governance and environmental protection, thereby attracting attention from more stakeholders, has become critical.

As fundamental units in urban economic development, businesses play a crucial role in green construction and sustainable development. The ESG rating mechanism is a vital indicator for measuring a company’s green and sustainable development levels [3]. Many countries require that companies disclose their ESG performance and adhere to sustainable development principles [4,5]. Furthermore, the transparency and standardization of ESG rating principles ensure that investors fully understand a company’s business philosophy and allow for comparisons of companies with similar financial conditions [6]. The ESG focuses on driving companies toward green transformation by guiding them in adhering to sustainable development principles. It serves as a crucial lever for a country to foster economic development through green and rational transition and therefore holds significant importance for global energy conservation and sustainable development.

As COVID-19 gradually comes under control, the environment is becoming increasingly conducive for FDI. As the largest developing country, China continues to enhance its business environment, attracting substantial international investment. According to the China Foreign Investment Development Report (2022) [7], China utilized an actual FDI of USD 173.48 billion in 2021, ranking second globally in annual FDI utilization for the preceding 30 consecutive years. The extensive application of FDI in China has facilitated the spread of specialized labor divisions, management experience, and the promotion of green development thinking at the enterprise level, manifesting as phenomena such as production technology innovation, process optimization, and increased environmental protection awareness. This leads to concerns that are captured in the following question: Does a city’s receptiveness of FDI affect companies’ ESG performance? Investigating this issue can result in a new path for the green transformation of cities and companies.

On the one hand, FDI serves as a crucial force for urban economic development [8]. It is believed that multinational corporations possess richer experience in environmental management and can highlight comparative advantages across regions, introducing new technologies and high-tech talents, which enhances local green innovation [9]. Traditional perspectives on the environmental effects of urban foreign investment remain contentious. First, the “pollution haven” hypothesis suggests that urban receptiveness to foreign investment may introduce high-pollution industries, inhibiting local green development [10]. Second, the “pollution halo” hypothesis posits that urban openness to foreign investment not only brings advanced technology and management experience [11] but also enhances the green productivity of domestic enterprises, thereby improving environmental welfare [12]. Third, some scholars suggest that there is no predetermined relationship between urban foreign investment receptiveness and environmental improvement [13,14]. Specific conditions have primarily been analyzed in recent research, with the finding that the green promotion effects brought about by FDI cannot be generalized and must instead be determined through the comprehensive consideration of factors such as government competition and distortions in factor markets [15].

On the other hand, the impact of FDI at the enterprise level is mainly reflected in knowledge spillover effects. Local enterprises, through various means such as technological exchanges between multinational corporations, employee exchanges [16], collaborative research and development [17], and backward linkage in the supply chain [18], can gain advanced technology and management experience. This effectively promotes corporate innovation [19], enhances production and technical efficiency [20], and optimizes the efficiency of energy utilization. Some scholars also argue that the spillover effects of knowledge may vary depending on the difference in technological levels between multinational corporations and local enterprises [21].

Although ESG performance is gaining attention in the academic community, mainstream research has primarily focused on its influencing factors and impact on corporate operational performance [22,23]. However, focusing solely on the correlation between a company’s own factors and ESG performance may be narrow and thus restrictive. The sustainability status of a company may also be influenced by the environmental conditions of its location. In other words, a company’s environment may exert a coercive effect on local companies such that those without relevant factors face incentives or constraints. This, in turn, may improve or inhibit their ESG performance. Such impacts are often overlooked in studies that focus solely on the company level. Several scholars have begun to recognize the significance of a company’s environment regarding impacts on ESG performance, moving beyond the research framework wherein the focus is solely on the company itself. They have explored how a company’s ESG rating is influenced by external environmental factors, such as religious beliefs [24], digital financial development [25], government debt [26], and policy planning [27]. However, there are few examples of such studies. This paper argues that the receptiveness of a city to foreign investment cannot be ignored in terms of its impact on a company’s ESG performance. Considering the knowledge externalities accompanying foreign investment [28,29], even if a company lacks the ability to attract FDI, it may still adjust its business strategy to improve ESG performance by interacting with other companies and gaining external information. It can benefit from management concepts and innovative technologies brought by foreign investment. This effect is likely to be overlooked in research that focuses solely on the company itself, as such companies have not directly received FDI, contributing to inaccuracies in previous research. Hence, this study addresses the following research question: Does the inclusiveness of foreign capital affect corporate environmental, social, and governance (ESG) performance in China? In addition, it investigates the underlying mechanisms.

The effects of FDI inclusiveness on corporate ESG performance and its underlying mechanisms are investigated by utilizing data from 1258 A-share listed companies. The contributions of this study encompass the two following aspects, framed in reference to past research: First, in differentiating from traditional approaches, this study examines the correlation of urban receptiveness to foreign investment at the macro level with companies’ ESG performance at the micro level, taking into consideration the external environment of urban receptiveness to foreign investment. The research investigates whether companies’ ESG performance is affected within this environment. Unlike previous studies, the occurrence of special cases is largely avoided. It can be considered that, despite not receiving FDI, some companies still exhibit evidence of upgrading and transformation, similar to companies receiving FDI. This finding is an advancement in previous research, which focused solely on the correlation between FDI and green transformation [30] or on the correlation between corporate foreign investment introduction and corporate ESG performance [31], thereby allowing the conclusions of existing research to be refined. Second, the literature on the relationship between FDI and corporate ESG performance remains limited. On the one hand, we review the literature and summarize shortcomings. On the other hand, we outline how urban receptiveness to foreign investment can enhance ESG performance. We refine the theoretical bridge between foreign investment and corporate ESG performance, analyze the mediating effects of green attention and corporate innovation, and explore the moderating effect of social media attention, thereby providing managers with viable paths to utilize FDI and enhance their ESG performance.

The remainder of this paper is structured as follows: Section 2 introduces the theoretical mechanisms, Section 3 presents the research design, Section 4 discusses the empirical analysis and results, and Section 5 concludes with research implications and recommendations.

2. Theoretical Hypothesis

2.1. Direct Impact of Foreign Capital Inclusiveness on Corporate ESG

The transfer of capital serves as a crucial channel for the diffusion of capital and technology. FDI is considered a vital means for promoting economic development in the capital-receiving region by bringing advanced technology and management experience from the capital-outflow region [32]. Empirical evidence suggests that FDI tends to flow from economically developed to less developed regions [33]. Consequently, pollution levels resulting from foreign investments are often lower than those from domestic sources [34]. Capital inflow has a minimal negative impact on local pollution levels or even exhibits slight adverse effects in some cases [35]. In many cases, regions receiving capital inflow benefit from the positive impact of FDI, promoting greening of the local economy. Between 1981 and 2005, there was no increase in the pollution emissions of 30 Organization for Economic Cooperation and Development (OECD) countries due to the entry of FDI; instead, there was a slight downward trend [34], with supporting evidence from numerous studies in China. Therefore, a more inclusive approach to FDI, rather than stringent restrictions, appears conducive to sustainable development.

Concerning comparative advantage, environmental investment is crucial for companies to enhance their ESG performance and establish a green competitive advantage [36,37,38]. However, Chinese companies, constrained by their strengths and traditional performance assessment systems, lack sufficient resources and technical support to enhance their green competitiveness through independent research and development [39]. In contrast, multinational corporations possess advanced technologies and management systems [40,41]. The introduction of FDI helps reduce the risks associated with green innovation for local companies. The formation of a high-quality portfolio of companies around FDI promotes the matching of supply and demand for high-level green innovation talent, facilitates the dispersion of human capital investment risks, fosters a conducive environment for innovation [42], and lowers ESG investment costs through green research and development spillovers within and between industries. This, in turn, drives local companies to engage in better ESG practices in promoting sustainable development.

Since multinational investments primarily aim at maximizing profits, established enterprises benefiting from FDI in the host city can bring advanced management experience. This strengthens the financial strength of invested enterprises, reduces risks associated with ESG investments, and encourages invested enterprises to engage in green innovation. Based on market mechanisms such as diversification agglomeration and attracting more high-quality talents to cluster in the market, many inefficient enterprises are unable to benefit from FDI. To avoid being eliminated from the market competition, these enterprises commonly use information exchange platforms to share or purchase management experience and green technologies from other companies to guide their ESG practices, thereby improving their ESG performance. Since having more foreign-funded companies in an industry can promote innovation in other companies, inefficient enterprises can shorten the gap with established enterprises, which have already benefited, by imitating ESG practices and green technologies [43,44], thus obtaining higher ESG scores and avoiding elimination from market competition. Hence, Hypothesis 1 is proposed.

Hypothesis 1.

The inclusiveness of foreign capital can effectively enhance the ESG performance of local companies.

2.2. Mechanisms of Foreign Capital Inclusiveness Affecting Corporate ESG

2.2.1. Mediating Effect

For companies, the increase in FDI not only brings advanced management experience and green technology but also comes with increased pressure because of environmental regulations and the preferences of investors for green consumption [45,46]. This compels corporate management to shift the focus of business operations toward green transformation. If companies overlook environmental and social governance issues, they may face penalties from the government, forcing them to invest more in environmental protection. Moreover, the “resource-based view” theory suggests that companies compare the investment and return associated with complying with environmental regulations to decide whether to adjust regarding their green operations. When the benefits of environmental investment outweigh the penalty imposed by environmental regulations, companies are more inclined to make green investments [37]. Therefore, the inclusiveness of FDI compels corporate management to enhance their green focus, incorporate ESG performance into the consideration of business operations, and improve levels of environmental protection by increasing investment in green technological innovation. This helps companies avoid government penalties and is accompanied by an increase in ESG performance.

At the same time, FDI has significant spillover effects on technology in developing countries. First, the entry of FDI increases the intensity of resource competition by compelling local enterprises, via imitation, to adopt advanced production technology and management experience [47,48], thereby enhancing their level of innovation. Second, through the exchange of local employees with foreign-funded enterprises, local enterprises can also gain access to advanced production technology and management experience, thereby laying a solid foundation for enterprise innovation. Finally, local enterprises can engage in bidirectional exchanges with foreign-funded enterprises, utilizing the spillover effects of knowledge to strengthen their technological and innovation capabilities [49]. Through these channels, local enterprises effectively mitigate the weakness of insufficient innovation capabilities, enhance their environmental awareness and governance capabilities, and improve their ability to operate, ultimately raising their ESG performance. Therefore, Hypotheses 2 and 3 are proposed.

Hypothesis 2.

The inclusiveness of foreign capital can optimize corporate ESG performance by increasing the green focus of management.

Hypothesis 3.

The inclusiveness of foreign capital can optimize corporate ESG performance by enhancing corporate innovation capabilities.

2.2.2. Moderating Effect

As a communication channel between companies and investors [45], online media can effectively disseminate ESG information and direct public attention toward companies [50]. According to Transaction Cost Economics (TCE) theory, the transparency of multinational corporations in the host country helps them establish good cooperative relationships with local investors. Hence, multinational corporations should actively interact with local investors through social media [51] to alleviate biases and transaction costs in the host country. Considering that the trust relationship between investors and companies is influenced by the spread of information through online media [52], the attention of investors is more significantly affected by the companies that prioritize them. A positive image of a company in the minds of investors helps in minimizing financial risks [53] and maintaining a positive corporate image [54,55]. Therefore, in regions with more developed social media and greater investor attention, companies have greater motivation to learn through new knowledge and management experience brought by foreign investment, actively engage in ESG practices to improve their performance, and establish more stable trust relationships with investors. This, in turn, increases corporate market visibility and market share. By improving ESG performance to reduce business risks, companies can achieve the long-term goals of sustainable business (Figure 1). Thus, Hypothesis 4 is proposed.

Hypothesis 4.

Investor attention positively moderates the effect of foreign capital inclusiveness on corporate ESG performance.

3. Methodology

3.1. Data Collection

Considering data availability and the consistency of variables, this study focuses on 1258 A-share-listed companies and their corresponding 188 prefecture-level cities between 2011 and 2021. Excluded from the sample are (special treatment) ST, *ST, (partial transfer) PT companies, and financial sector firms. The data sources for those company-level variables are annual reports of the listed companies and the Wind database, while the data sources for those corresponding prefecture- and city-level variables are the statistical yearbooks of each city. We first obtain the basic information data for company-level variables from the Wind database, fill in the necessary information using the relevant annual reports of the listed companies, and finally fill in the data for variables of the cities in which they are located. All data are subjected to a winsorization process, truncating extreme values at the 1% level to eliminate outliers. After excluding samples with significant missing values, the analysis is conducted on the remaining 10,048 observations.

3.2. Research Design

To investigate the impact of foreign capital inclusiveness on corporate environmental, social, and governance (ESG) performance in China, this study utilizes a two-way fixed-effects model. Compared with the pooled least squares (POLS) model, two-way fixed-effects models provide a means to control for unobserved heterogeneity by modeling individual-specific effects and time-fixed effects and can provide consistent estimates of causal effects under certain conditions. Considering the advantages, a two-way fixed effects model suits the analysis in this study. In addition, baseline regression is combined with the panel quantile regression to explore the link between foreign capital inclusiveness and corporate ESG performance. The models are listed as Equations (1) and (2):

$$ES{G}_{it}={\beta }_0+{\beta }_{1}Ope{n}_{it}+\lambda D_{it}+v_i+{\mu }_t+{\omega }_{\mathrm{c}}+{\epsilon }_{it}$$

(1)

$$ES{G}_{it}(\left.\tau \right|Ope{n}_{it},D_{it})={\alpha }_i+{\beta }_{\tau }Ope{n}_{it}+{\theta }_{\tau }{D}_{it}+{\epsilon }_{\tau ,it}$$

(2)

In addition, the following models are established for mechanism testing, as shown in Equations (3)–(5). Equations (3) and (4) represent the mediation effect models, and Equation (5) represents the moderation effect model:

$$ES{G}_{it}={\beta }_0+{\beta }_{1}Ope{n}_{it}+{\beta }_{2}Mi{d}_{it}+\lambda D_{it}+v_i+{\mu }_t+{\omega }_{\mathrm{c}}+{\epsilon }_{it}$$

(3)

$$Mi{d}_{it}={\beta }_0+{\beta }_{1}Ope{n}_{it}+\lambda D_{it}+v_i+{\mu }_t+{\omega }_{\mathrm{c}}+{\epsilon }_{it}$$

(4)

$$ES{G}_{it}={\beta }_0+{\beta }_{1}Ope{n}_{it}+{\beta }_{2}Focu{s}_{it}+{\beta }_{3}Focu{s}_{it}\times Ope{n}_{it}+\lambda D_{it}+v_i+{\mu }_t+{\omega }_{\mathrm{c}}+{\epsilon }_{it}$$

(5)

In the above equations, $ES{G}_{it}$ represents corporate ESG performance, $Ope{n}_{it}$ represents foreign capital inclusiveness, $Mi{d}_{it}$ represents mediating variables, $Focu{s}_{it}$ represents investor attention, $D_{it}$ represents control variables, ${\beta }_{\tau }$ and ${\theta }_{\tau }$ are the marginal effect parameters at the $\tau$-th quantile, and ${\epsilon }_{\tau ,it}$ represents the random error term. $i$ represents the individual, and $t$ represents the time. $v_i$, ${\mu }_t$, and ${\omega }_{\mathrm{c}}$ represent individual, time, and city fixed effects, respectively.

3.3. Definitions of the Variables

3.3.1. Dependent Variable

Corporate ESG performance (ESG) is the dependent variable, which is measured using Bloomberg’s ESG scores. The ESG rating scores are provided to assist investors, managers, and other related parties in making successful decisions.

3.3.2. Independent Variable

The independent variable is foreign capital inclusiveness (Open), measured by the ratio of actual foreign capital utilization to gross domestic product (GDP) where the company is located. Actual foreign capital refers to funds that arrive after China signs contracts with foreign investors. The actual foreign capital utilization for the city where the company is registered by matching the information with the City Statistical Yearbook.

3.3.3. Mediating Variable

Management green attention (Gattention) is the mediating variable, measured as the ratio of directors with green industry experience to the total number of board members. Corporate innovation capability (Innovation) is measured as a logarithm of the sum of annual patent applications by the company. Both variables function as mediating variables in terms of the impact of foreign capital inclusiveness on corporate ESG performance.

3.3.4. Moderating Variable

Investor attention (Focus) is measured as the level of investor attention based on the volume of keywords related to listed companies through a Baidu search. It indirectly influences the impact of foreign capital inclusiveness on corporate ESG performance.

3.3.5. Control Variables

Following Qing et al. (2024) [56], we include the following control variables for both the company and city dimensions. Company-level variables include company size (Size), employee qualifications (Education), equity concentration (Concentration), risk sensitivity (Sensitivity), and return on assets (ROA). City-level variables include digital inclusive finance (DIFI), green credit support (Greencredit), and internet penetration rate (Internet).

Table 1. Control variables.

Variable	Definition
Size	Natural logarithm of total assets plus one
Education	Proportion of employees with graduate education
Concentration	Ownership ratio of the largest shareholder in the company
Sensitivity	Logarithm of one plus the total number of uncertainty-related keywords in the annual report
ROA	Total asset profit margin
DIFI	Digital Inclusive Finance Index
Greencredit	Proportion of environmental project credit to total credit
Internet	Broadband penetration rate among permanent residents

presents detailed measurement methods for the control variables.

4. Empirical Analysis Results

4.1. Descriptive Statistics

Table 2. Descriptive statistics.

Variable	N	Mean	Std. Dev.	Min	Max
ESG	10,048	28.281	8.874	11.769	55.528
Open	10,048	3.243	3.304	0.0001	35.270
Gattention	10,048	0.046	0.091	0	0.5
Innovation	10,048	2.347	1.848	0	8.841
Focus	10,048	12.950	1.238	0	17.191
Size	10,048	23.743	1.147	21.337	27.321
Education	10,048	4.230	6.115	0	35.000
Concentration	10,048	37.636	16.199	8.716	77.288
Sensitivity	10,048	0.100	0.110	0	0.549
ROA	10,048	0.048	0.057	−0.164	0.219
DIFI	10,048	226.421	74.287	57.100	351.532
Greencredit	10,048	0.062	0.023	0.013	0.110
Internet	10,048	30.804	10.904	8.081	59.465

presents descriptive statistics for all variables. The maximum value for the ESG variable is 55.528, with a mean of 28.281, indicating a significant gap from the maximum score of 100 according to Bloomberg’s ESG scale. This suggests that the overall ESG performance is relatively mediocre, and ESG practices are thus still in the developmental stage in China. The mean is around the midpoint between the maximum and minimum values, with a variance of 8.874, indicating a relatively smooth distribution of ESG levels among Chinese companies, with significant differences in ESG performance between companies. For the “Open” variable, there is a substantial disparity between the minimum and maximum values, yet the variance is only 3.304. This indicates that, although certain cities may exhibit higher levels of FDI utilization in specific years, the receptivity of Chinese cities to foreign investment remains low, and further improvement is required.

4.2. Baseline Regression Results

Columns (1) and (2) of

Table 3. Baseline regression results.

	OLS		FE
	(1)	(2)	(3)	(4)
Open	0.335 ***	0.070 ***	0.041 **	0.050 ***
	(13.35)	(4.25)	(2.40)	(2.93)
Size		1.842 ***	1.168 ***	1.151 ***
		(21.87)	(11.97)	(11.68)
Education		−0.009	0.008	0.006
		(−0.59)	(0.44)	(0.32)
Concentration		0.007	0.019 **	0.021 ***
		(1.15)	(2.51)	(2.80)
Sensitivity		0.188	−0.701	−0.801
		(0.37)	(−1.43)	(−1.62)
ROA		4.197 ***	3.860 ***	3.919 ***
		(3.89)	(3.67)	(3.72)
DIFI		0.065 ***	−0.001	0.003
		(60.37)	(−0.10)	(0.44)
Greencredit		3.994	3.961	4.607
		(1.26)	(1.25)	(1.45)
Internet		0.053 ***	−0.000	0.004
		(7.23)	(−0.05)	(0.46)
Constant	27.275 ***	−32.913 ***	−0.483	−1.288
	(131.28)	(−17.17)	(−0.17)	(−0.45)
N	10,048	10,048	10,048	10,048
R2	0.018	0.631	0.840	0.842
Id FE	NO	NO	YES	YES
City FE	NO	NO	NO	YES
Year FE	NO	NO	YES	YES

Note: t-statistics in parentheses *** p < 0.01, ** p < 0.05.

are the results of ordinary least squares (OLS) regression, while column (3) displays the regression results when controlling for individual and time effects. Column (4) includes the regression results with the addition of city effects. These results show that although the coefficient of foreign capital inclusiveness decreases slightly after introducing control variables and fixed effects, a consistent positive and significant association is maintained, validating Hypothesis 1.

4.3. Panel Quantile Regression Results

Considering that the data used in this study do not strictly adhere to a normal distribution, panel quantile regression is further employed to mitigate estimation biases [57]. Following the methodology of existing studies [58], quantiles at every 10th percentile are utilized for the analysis, and the results are presented in

Table 4. Panel quantile regression results.

	(1) 10%	(2) 20%	(3) 30%	(4) 40%	(5) 50%	(6) 60%	(7) 70%	(8) 80%	(9) 90%
Open	−0.025	0.013	0.042 *	0.071 ***	0.100 ***	0.135 ***	0.167 ***	0.201 ***	0.244 ***
	(−0.72)	(0.45)	(1.77)	(3.38)	(5.04)	(6.29)	(6.65)	(6.59)	(6.33)
Size	0.783 ***	0.915 ***	1.017 ***	1.117 ***	1.219 ***	1.338 ***	1.450 ***	1.566 ***	1.716 ***
	(4.10)	(5.94)	(7.81)	(9.79)	(11.28)	(11.51)	(10.62)	(9.47)	(8.19)
Education	0.030	0.031	0.032	0.033	0.034 *	0.035	0.036	0.037	0.039
	(0.83)	(1.07)	(1.31)	(1.54)	(1.67)	(1.61)	(1.41)	(1.20)	(0.98)
Concentration	−0.001	−0.001	−0.001	−0.000	−0.000	0.000	0.001	0.001	0.002
	(−0.10)	(−0.08)	(−0.07)	(−0.04)	(−0.00)	(0.04)	(0.07)	(0.09)	(0.10)
Sensitivity	0.294	0.121	−0.014	−0.144	−0.277	−0.434	−0.580	−0.732	−0.929
	(0.31)	(0.16)	(−0.02)	(−0.25)	(−0.51)	(−0.75)	(−0.85)	(−0.88)	(−0.89)
ROA	4.908 ***	5.199 ***	5.426 ***	5.647 ***	5.871 ***	6.135 ***	6.383 ***	6.639 ***	6.971 ***
	(2.64)	(3.46)	(4.28)	(5.09)	(5.59)	(5.42)	(4.80)	(4.12)	(3.41)
DIFI	0.078 ***	0.075 ***	0.072 ***	0.069 ***	0.066 ***	0.063 ***	0.060 ***	0.056 ***	0.052 ***
	(37.47)	(44.21)	(50.15)	(54.80)	(55.32)	(48.83)	(39.69)	(31.10)	(22.73)
Greencredit	14.831 **	13.620 ***	12.676 ***	11.759 ***	10.827 ***	9.731 ***	8.703 **	7.638	6.258
	(2.54)	(2.89)	(3.18)	(3.37)	(3.28)	(2.74)	(2.08)	(1.51)	(0.98)
Internet	0.024 *	0.037 ***	0.048 ***	0.057 ***	0.068 ***	0.079 ***	0.091 ***	0.102 ***	0.117 ***
	(1.72)	(3.29)	(4.96)	(6.84)	(8.49)	(9.27)	(9.01)	(8.39)	(7.59)
N	10,048	10,048	10,048	10,048	10,048	10,048	10,048	10,048	10,048
Id FE	YES	YES	YES	YES	YES	YES	YES	YES	YES
City FE	YES	YES	YES	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES	YES	YES	YES

Note: t-statistics in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.

. According to Table 4, foreign capital inclusiveness does not significantly impact corporate ESG when the ESG level is relatively low (10%, 20%). Such companies often prioritize short-term financial goals and lack the capacity for ESG practices. However, as the ESG performance reaches the 30th percentile, the impact turns significantly positive and continues to steadily increase up to the 90th percentile, with a remarkable 481% proportional increase in the coefficient from the 30th to the 90th percentile. This suggests that when companies overcome operational difficulties, they gradually increase their focus on ESG performance, and this attention significantly increases with the improvement of ESG performance. Overall, the findings from quantile regression are aligned with those from panel regression, providing further support for Hypothesis 1.

4.4. Endogeneity Test

Considering the potential endogeneity issues in the analysis, the level of production intelligence (Csmd) measured using the stock of imported intelligent robots in the city is employed as an instrumental variable (IV) for further analysis. Digitalization and intelligence are factors for internationalization [59], and many manufacturers of industrial products require that recipients of cross-border services meet the high standards for digital intelligence. According to Fu et al. (2021) [60] and Xin and Ye (2024) [61], the adoption of intelligent robots is highly linked with inclusive growth, especially in the economic, employment, and investment fields. In their cross-country study, Hallward-Driemeier and Nayyar (2019) [62] found the distribution intensity of intelligent robots has a positive impact on FDI growth. Regions with higher levels of production intelligence are often more attractive to foreign investors, resulting in production intelligence being highly correlated with foreign capital inclusiveness. Moreover, the overall level of production intelligence in a region is not directly related to the specific ESG behavior of individual enterprises. Therefore, using this variable as an IV helps to address potential endogeneity issues.

Table 5. Endogeneity test results.

	(1) Open	(2) ESG
Csmd	0.001 ***
	(7.38)
Open		2.990 ***
		(5.77)
Control variables	YES	YES
Constant	−0.001	−43.220 ***
	(−0.001)	(−18.25)
F	54.497
Id FE	YES	YES
City FE	YES	YES
Year FE	YES	YES

Note: z-statistics in parentheses, *** p < 0.01.

presents the results of IV regression. The F-test indicates the absence of weak IV problems, allowing rejection of the null hypothesis of “insufficient instrument relevance”.

4.5. Mechanism Tests

Columns (1) to (4) of

Table 6. Results of mechanism tests.

	Mediating Test				Moderating Test
	(1)	(2)	(3)	(4)	(5)
	Gattention	ESG	Innovation	ESG	ESG
Open	0.001 *	0.048 ***	0.008 **	0.048 ***	0.051 ***
	(1.75)	(2.84)	(2.45)	(2.83)	(3.00)
Gattention		3.449 ***
		(4.85)
Innovation				0.217 ***
				(4.14)
Focus					0.149
					(1.49)
Open×Focus					0.020 *
					(1.77)
Control variables	YES	YES	YES	YES	YES
Constant	0.180 ***	−1.909	−4.636 ***	−0.280	−2.320
	(4.17)	(−0.66)	(−7.92)	(−0.10)	(−0.79)
N	10,048	10,048	10,048	10,048	10,048
R2	0.662	0.842	0.849	0.842	0.842
Id FE	YES	YES	YES	YES	YES
City FE	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES

Note: t-statistics in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.

show the results of the mediation tests, while column (5) shows the results of the moderation effect tests. According to columns (1) and (2), green attention plays a positive and significant mediating role in the effects of foreign capital inclusiveness on corporate ESG performance. Similarly, according to columns (3) and (4), technological innovation capability plays a significant mediating role in the total effect, indicating that foreign capital inclusiveness improves corporate ESG performance by enhancing technological innovation capability, thereby supporting Hypotheses 2 and 3.

To explore the moderating effect of investor attention on the total effect, the interaction term Open×Focus is constructed by centering and multiplying foreign capital inclusiveness (Open) and investor attention (Focus). According to the coefficient of the interaction term in column (5), investor attention plays a positive moderating role in the total effect: the higher the investor attention on the company, the more actively the company will utilize the spillover effects of foreign investment, striving to improve its ESG performance. Hence, Hypothesis 4 is supported.

4.6. Robustness Checks

To ensure the robustness of the results, robustness tests were conducted based on the following: autocorrelation tests, replacement of variables, and measurement intervals. Firstly, regression with lagged first-order variables is performed to avoid potential autocorrelation between the same-year variables and dependent variables, as shown in column (1) of

Table 7. Robustness test results.

	Lagged Term	Replacing Variable	Divided Time Periods
	(1)	(2)	(3)	(4)
Open			−0.024	0.053 ***
			(−0.13)	(3.11)
L·Open	0.043 **
	(2.07)
Open2		0.043 **
		(2.05)
Constant	−2.230	4.470	25.672 ***	−8.407 **
	(−0.61)	(1.50)	(3.16)	(−2.16)
N	8524	9460	2084	7866
R2	0.850	0.845	0.823	0.843
Id FE	YES	YES	YES	YES
City FE	YES	YES	YES	YES
Year FE	YES	YES	YES	YES

Note: t-statistics in parentheses, *** p < 0.01, ** p < 0.05.

. Second, the annual total import value of cities is used instead of the actual foreign capital utilization in the regression to ensure that the variables are correctly measured and to lower the chance of endogeneity, as shown in column (2) of Table 2. Lastly, the sample period was adjusted in accordance with “Guiding Opinions on the Comprehensive Attraction of Foreign Investment in 2013” [63], and tests separately conducted for the periods 2011 to 2013 and 2014 to 2021 to examine the impact of foreign investment on ESG performance, as in columns (3) and (4) of Table 7. It can be observed that prior to issuance of the guidance, the “Open” coefficient was negative and not significant, while it turned significantly positive thereafter. This suggests that foreign investment has a significant impact on ESG performance. In summary, the results of the robustness tests support the conclusions drawn earlier in this paper, indicating the robustness of the findings.

4.7. Heterogeneity Effects

The sample was divided based on whether companies were influenced by digital policies, environmental protection policies, and corporate ownership. Heterogeneity tests were conducted, and the results are in

Table 8. Heterogeneity affects results.

	Digital Policy		Environmental Policy		Ownership
	(1)	(2)	(3)	(4)	(5)	(6)
Open	0.063 ***	0.028	0.054 **	0.036	0.025	0.087 ***
	(3.18)	(0.93)	(2.31)	(1.42)	(0.95)	(3.71)
Constant	−9.592 *	4.983	5.014	−4.726	4.367	−8.519 **
	(−1.91)	(1.20)	(0.62)	(−1.40)	(1.04)	(−1.96)
N	5679	4285	3916	6090	5316	4636
R2	0.855	0.849	0.861	0.842	0.856	0.833
Id FE	YES	YES	YES	YES	YES	YES
City FE	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES

Note: t-statistics in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.

. Columns (1) and (2) are the results for those influenced and not influenced by the broadband China policy. Columns (3) and (4) are the results for those influenced and not influenced by the carbon trading policy. Columns (5) and (6) are the results for state-owned and non-state-owned enterprises, respectively.

The results indicate that, for companies influenced by digital policies and environmental protection policies, the impact of foreign capital inclusiveness on corporate ESG performance is more pronounced. On the one hand, digital policies significantly enhance regional public environmental awareness and green innovation capabilities. They promote the dissemination of innovative technologies and green management concepts by improving the construction level of local internet platforms, allowing local companies to better access high-tech brought by foreign investment, and allowing new methods of business management to be developed. This has a significant promotion effect on the ESG performance of local enterprises. On the other hand, environmental protection policies strengthen the green equity trading market by increasing its depth. For enterprises in pilot areas, increasing attention to environmental protection not only reduces the cost of pollution emissions but also generates income through the sale of equity, effectively promoting local companies to undergo green transformation and thereby improve their ESG performance. For state-owned enterprises, the utilization of foreign capital is subject to higher constraints, and state-owned enterprises often enjoy privileges in controlling government resources, creating barriers to the entry of foreign investment. Therefore, for state-owned enterprises, foreign capital inclusiveness tends to be less effective at enhancing ESG performance. Non-state-owned enterprises are not subject to such constraints and thus experience a more pronounced improvement in ESG performance.

5. Conclusions and Discussion

5.1. Main Findings

The study focuses on a sample of 1258 A-share listed companies from 2011 to 2021, specifically examining the correlation between foreign capital inclusiveness and corporate ESG performance as well as the mechanisms involving relevant mediating and moderating variables. The results indicate the following: (1) Improvements in foreign capital inclusiveness significantly enhance corporate ESG performance, which is somewhat consistent with the conclusions in the study of Zhao et al. (2024) [64]. (2) Foreign capital inclusiveness can improve corporate ESG performance by enhancing the digital innovation capabilities and green attention of management. Innovation is a vital skill for companies to compete in the global market, which indirectly affects the impact of foreign capital inclusiveness on corporate ESG performance [65]. (3) Corporate competitive advantage, urban innovation, and entrepreneurial vitality can amplify the enhancing effect of foreign capital inclusiveness on ESG performance. This is somewhat consistent with the study of Xie et al. (2024) [66]. (4) The impact of foreign capital inclusiveness on ESG performance exhibits heterogeneity, with effects varying based on the influence of digital policies, environmental policies, and different types of corporate ownership. This somewhat confirms the study of Lu and Cheng (2024) [67] that the regions enterprises are in, and the ownership of those enterprises, influences ESG performance.

5.2. Managerial Implications

Based on the above findings, we suggest that the relevant cities in China should open to the outside world and guide inward foreign investment in an organized manner based on careful assessment of the nature of foreign investment, thereby enhancing its inclusiveness. Regional and local enterprises can be guided regarding ESG practices and complete green transformation, gradually achieving green and sustainable economic development. Additionally, the local government should enhance the city’s level of digitization and increase the depth of equity market transactions, which can positively promote the ESG performance of local enterprises. Moreover, as suggested by Qing et al. (2022) [68], corporations should place greater emphasis on future market value and devote efforts toward enhancing the impact of foreign capital inclusiveness on corporate ESG performance. In a word, increased foreign capital inclusiveness in the Chinese market can improve corporate ESG performance both directly and indirectly, thereby improving the quality of local economies and achieving the goal of sustainable development.

5.3. Limitations and Further Research

There are some limitations to this study that need to be addressed and can be resolved in further studies. First, some factors may also impact the relationship between foreign capital inclusiveness and corporate ESG performance, including the regulatory environment and corporate governance structures [69,70,71]. We have not fully considered and included these potential factors in our study, but these variables can be considered in analyses conducted in future studies. Second, our study is based on the data of A-share companies in China. However, the conditions in different countries vary significantly, which may lead to totally different outcomes, and comparative studies can also be insightful. Additionally, the long-term sustainability of the improvement in ESG can be a promising topic for research. Further studies can be conducted in other developing countries or emerging markets to examine the relationship between the inclusiveness of foreign capital and corporate ESG performance. Third, some other influencing mechanisms can be employed in the analysis, considering more in-depth analysis from other perspectives, particularly regarding green innovation and the structure of the board of directors. Fourth, despite utilizing the IV method to solve problems related to endogeneity and bidirectional causation, establishing causality remains challenging, and the problems of potential bidirectional causality can be addressed in future studies. In summary, there is considerable scope for exploring performance in future research.