The impact of peer ESG disclosure on firms’ green innovation: quality and efficiency

Firms increasingly benchmark their sustainability strategies against their peers, making the ESG disclosure of comparable firms a salient signal that can spill over into green innovation decisions. Drawing on reputational considerations and competitive dynamics, we examine how peer ESG disclosure shapes two green innovation outcomes, namely green patent quality and conversion efficiency. We estimate regressions using data on listed firms in the China stock exchange market during 2013–2022. The evidence suggests that peer ESG score enhances innovation quality but reduces innovation efficiency of focal firms. These patterns remain robust across alternative specifications. Additional analyses reveal that the quality-enhancing effect is stronger among firms with broader financing channels, whereas greater external industry pressure strengthens the negative effect on innovation efficiency. These results highlight how peer ESG signals shape the quality-efficiency trade-off in green innovation. Overall, the evidence indicates that peer ESG signals are associated with higher-quality green innovation, whereas strategic interactions among competitors may create misallocation and thus reduce innovation efficiency. Joint governance by capital markets and regulators may help steer corporate responses towards a more credible and balanced green transition.