Strong ESG records help firms take R&D global, study finds

A study of 1,180 firm-year observations from Chinese listed companies finds that strong ESG performance significantly improves firms’ ability to expand research and development overseas, as reputation, credibility and verifiable environmental standards become decisive factors in accessing international innovation networks

Companies with strong environmental, social and governance (ESG) performance are significantly more likely to expand their research and development overseas, according to new research.

A study by Durham University Business School found that ESG strength acts as a reputational signal abroad, helping firms present themselves as trustworthy partners and credible investments in foreign markets. 

That, in turn, makes it easier to secure international partnerships, attract investors and access government support for overseas innovation activity.

Led by Professor Xinming He, the research analysed 1,180 firm-year observations from Chinese listed companies between 2007 and 2023, comparing ESG performance over time with increases in overseas R&D activity. 

The results suggest that companies with stronger ESG credentials gain additional legitimacy internationally, which smooths the path for cross-border research initiatives.

Professor He said shareholders should push companies to integrate ESG into core strategy rather than treating it as a compliance exercise.

“Shareholders should push companies to integrate ESG into their core business strategy, not treat it as a box-ticking exercise,” he said. “Instead of simply reporting ESG policies, companies should focus on tangible results, such as cutting carbon emissions or improving working conditions. Measuring real-world outcomes helps firms build trust, innovate sustainably, and remain competitive in global markets.”

The researchers warn that environmental violations can quickly erode these benefits. Firms that breach regulations risk undermining their ESG reputation, which can make international collaboration and access to innovation funding more difficult. 

And they recommend stronger environmental controls, audits, staff training and independent verification to ensure ESG claims are credible.

The study also notes that ESG signals from state-owned enterprises are often viewed as compliance-driven rather than authentic, limiting their impact. 

In such cases, firms may need to pursue alternative strategies such as technology acquisition abroad or closer collaboration with host-country governments and businesses to support overseas R&D.

The findings suggest policymakers could accelerate international innovation by strengthening ESG reporting standards and incentivising verifiable improvements.

As ESG becomes an increasingly recognised global marker of responsible business, the researchers conclude that firms demonstrating measurable progress are likely to find it easier to access international innovation ecosystems.

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