Does ESG performance facilitate a win-win for green innovation and economic benefits?

Amid growing emphasis on sustainable development, the Environmental, Social, and Governance (ESG) framework has emerged as a vital strategic approach for building competitive advantage and long-term value. However, transaction cost theory suggests ESG investments may face a “return paradox,” raising a critical question: can ESG performance effectively foster synergistic development between corporate green innovation and economic benefits? Utilizing panel data from Chinese A-share listed companies (2011–2023), this study empirically examines this relationship. The results show that ESG performance, both in aggregate and across its individual dimensions, significantly promotes green–economic synergy, a finding robust to alternative measures and endogeneity tests. Mechanism analysis reveals that ESG facilitates synergy primarily by enhancing access to government subsidies, improving internal control quality, and alleviating information constraints. Furthermore, stricter external environmental regulations and deeper internal digital transformation positively moderate this relationship. Heterogeneity analysis indicates the effect is more pronounced in high-pollution firms and state-owned enterprises. This study contributes to the literature on ESG economic consequences and provides actionable insights for policymakers and managers seeking to advance sustainable, innovation-driven development.