Strong ESG performance boosts R&D innovation, according to new research

Companies with strong ESG performance are significantly more successful in expanding their R&D activities overseas, according to new research from Durham University Business School.

The researchers say that this is because strong ESG performance enhances a company’s reputation and credibility abroad, signalling that it is a trustworthy investment and a reliable partner.

This strengthens firms’ legitimacy and attractiveness to international partners, making overseas R&D expansion more feasible.

The research, led by Xinming He, Professor of Marketing at Durham University Business School, with Xi Zhong (Shenzhen University) and Jianquan She (Guangdong University of Technology), explored how ESG performance influences firms’ overseas R&D initiatives and under what conditions this effect is strongest.

The team analysed a dataset of 1,180 firm‑year observations from Chinese listed companies from 2007 to 2023, comparing ESG performance over time with increases in overseas R&D activity.

Their findings suggest that companies with strong ESG credentials gain additional credibility internationally, which helps them attract investors, secure partnerships, and receive government support in foreign markets.

For company owners, as global scrutiny of corporate behaviour intensifies, the study shows that ESG is becoming a powerful currency for accessing international innovation ecosystems.

“Shareholders should push companies to integrate ESG into their core business strategy, not treat it as a box-ticking exercise,” says Prof. Xinming He. “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 also caution that environmental violations can undermine these benefits. Companies that breach environmental regulations may see their ESG reputation suffer, making international collaboration and access to innovation funding more difficult.

To prevent this, firms need robust environmental controls, regular audits, staff training, and independent verification to ensure ESG claims are credible.

Whilst, the study notes that ESG signals sent by state-owned enterprises are often interpreted as compliance‑driven rather than genuine, reducing their impact.

The researchers suggest that these firms may need alternative approaches, such as acquiring foreign technology or working closely with local governments and businesses in host countries, to support overseas R&D and long-term innovation goals.

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

As ESG becomes a global language for responsible business, the study concludes, firms that demonstrate authentic, measurable progress stand to lead the next wave of international innovation.