ESG and Commercial Credit Financing: Based on Government Subsidies and Polluted Areas

Abstract

This paper investigates whether and how firms’ Environmental, Social and Governance (ESG) performance affects commercial credit financing (SCF) in the context of Chinese listed companies. Using panel data on A-share firms and ESG ratings, this study constructs a comprehensive measure of SCF based on supplier-provided trade credit and estimate fixed-effects models. The results show that ESG performance is positively and significantly associated with SCF. Further analysis reveals pronounced heterogeneity: ESG enhances SCF only in non-heavily polluting industries and among firms receiving government subsidies, while the effect is insignificant for heavily polluting and non-subsidised firms. These findings suggest that ESG operates as a credible financing signal when it reflects voluntary engagement. The results imply that firms can treat ESG as part of their financing strategy and use it to improve access to supplier credit. Suppliers can also incorporate ESG indicators into credit-risk assessment. Policymakers may strengthen ESG disclosure rules and subsidy design to support more efficient, sustainability-oriented supply-chain finance.