International Journal of
Environmental Research
and Public Health
Article
Government Environmental Regulation and Corporate ESG
Performance: Evidence from Natural Resource Accountability
Audits in China
Yingzheng Yan 1 , Qiuwang Cheng 2 , Menglan Huang 1 , Qiaohua Lin 1 and Wenhe Lin 1, *
Citation: Yan, Y.; Cheng, Q.; Huang,
M.; Lin, Q.; Lin, W. Government
Environmental Regulation and
Corporate ESG Performance: Evidence
from Natural Resource Accountability
Audits in China. Int. J. Environ. Res.
Public Health 2023, 20, 447. https://
doi.org/10.3390/ijerph20010447
Academic Editor: Paul B. Tchounwou
Received: 15 October 2022
Revised: 30 November 2022
Accepted: 22 December 2022
Published: 27 December 2022
Copyright: © 2022 by the authors.
Licensee MDPI, Basel, Switzerland.
This article is an open access article
distributed under the terms and
conditions of the Creative Commons
Attribution (CC BY) license (https://
creativecommons.org/licenses/by/
4.0/).
Int. J. Environ. Res. Public Health 2023, 20, 447. https://doi.org/10.3390/ijerph20010447
1 College of Economics and Management, Fujian Agriculture and Forestry University, Fuzhou 350002, China
2 School of Economics and Business Administration, Postdoctoral Research Center of Business Administration,
Chongqing University, Chongqing 400044, China
* Correspondence: linwenhe@fafu.edu.cn
Abstract: With the increasing global concern for the ecological environment and sustainable devel-
opment, all countries have proposed environmental regulatory policies to improve the quality of
their ecological environments. China has also proposed an environmental regulation policy: Leading
an officials’ accountability audit of natural resources (AANR). As the main subject of consuming
resources, the sustainability of enterprises has become a focus of all parties. The Environmental,
Social, and Governance (ESG) metric measures corporate sustainability. As a result, companies’ ESG
performance has gained the community’s attention. Based on data from Chinese A-share listed
companies in Shanghai and Shenzhen from 2011 to 2019, this study investigates the role of AANR on
the ESG performance of companies via the difference-in-differences (DID) method. This study found
that implementing the AANR pilot significantly negatively impacted corporate ESG performance.
This result was found to remain robust after passing parallel trend and robustness tests. Further
research found that the AANR differed significantly across corporate ownership and regions in
corporate ESG performance. First, pilot implementation had a more significant impact on the ESG
performance of non-state enterprises. Second, the differences across regions showed that the central
region had the most significant impact, followed by the western region, while the eastern region
had the most negligible impact. This study will help government departments improve the AANR
system and enable companies to focus on their ESG performance.
Keywords: environmental regulation; ESG indices; sustainable development; government audit
1. Introduction
Recently, the concept of high-quality development characterized by innovation, sus-
tainability, coordination, openness, and sharing has been widely accepted and adopted.
This concept promotes the sustainable development of the global economy [1]. In response
to this global development trend, China’s economy is gradually shifting from a high-growth
stage to a high-quality development stage. Ecological civilization has been incorporated
into China’s development requirements, and China has further emphasized implementing
the concept of sustainable development. However, China’s economy has been growing
at a high rate for a long time. In this process, China has placed excessive emphasis on
regional economic construction and development, making economic assessment indicators
a vital reference standard in the promotion evaluation system of regional officials. This
type of examination requires officials to develop a management model that promotes
rapid regional economic development at the expense of the region’s natural resources [2].
However, rapid economic development has seriously damaged natural resources and
the ecological environment. Subsequently, China has started to provide vital protection
for the construction of ecological civilization by establishing strict systems and enforcing
the rule of law at the national level [3]. In this context, The Third Plenary Session of the
https://www.mdpi.com/journal/ijerph
Int. J. Environ. Res. Public Health 2023, 20, 447 2 of 16

18th Central Committee of the Communist Party of China proposed for the first time to
conduct an exit AANR for leading cadres and build a lifelong accountability system for
damage to the ecological civilization. Since 2014, four pilot batches of AANR have been
carried out, and the system was normalized in 2018. Implementing this pilot project can
effectively restrain the behavior of regional officials who focus only on the economy but
not on resource conservation during their tenure and make local officials pay attention to
environmental protection in their jurisdictions [4]. At the same time, as one of the main
subjects of environmental pollution and natural resource consumption [5], the introduction
of a binding system also constrains the behavior of enterprises in the jurisdiction. Environ-
mental regulations make it necessary for companies to increase their economic value and
take more social responsibility regarding resource use and environmental protection in the
context of regional development. Therefore, the traditional perception of corporate respon-
sibility is no longer adapted to the requirements of the times for the construction of a global
ecological civilization. The concept of responsibility fulfillment is led by the Environmental,
Social, and Governance dimensions, which have become the three most important aspects
to measure the sustainable development of enterprises. The ESG concept originated from
responsible and ethical investments, formally introduced by the United Nations Principles
for Responsible Investment in 2006. Since then, the ESG investment concept has started to
gain attention. ESG ratings have become a vital indicator for investors to examine whether
a company is worth investing in [6]. In 2021, the China Securities Regulatory Commission
(CSRC) reformulated and unified the disclosure standards for ESG information in listed
companies’ statements, further indicating that the Chinese market is also paying more
attention to the ESG information of listed companies.
With the implementation of the AANR pilot, local governments need to intervene and
restrain the negative external behavior of enterprises to achieve the desired environmental
goals. Therefore, to alleviate the assessment pressure of AANR, local officials will impose
stronger environmental regulations on the enterprises in the jurisdictions where they
work [7], thus guiding them toward high-quality development. In this context, the present
study explores whether corporate ESG performance will be affected by this pilot. Here,
we utilize data from Chinese A-share listed companies in Shanghai and Shenzhen from
2011–2019 as the research sample. The AANR pilot is used as a quasi-natural experiment.
This article adopts the DID method to explore in depth whether pilot implementation
will impact corporate ESG performance. This study offers two main contributions. Most
existing studies focus on the impact of corporate ESG performance on corporate value,
investments and other factors. However, few studies have examined the impact of regional
environmental policies in China on the ESG performance of local firms. This study is the
first attempt to include AANR pilot implementation and corporate ESG performance in the
same explanatory framework and explore the possible causal relationship between them.
The study also finds that the pilot implementation in China is not conducive to enhancing
the relationship between the ESG performance of firms in the short run. This effect varies
significantly by firm ownership and region. Additionally, the negative impact of the pilot
implementation on the ESG performance of non-state enterprises is more significant than
that of state-owned enterprises. The pattern of regional differences shows that the central
region has the most significant impact, followed by the western region, and the eastern
region has the slightest impact.
The rest of the paper is organized as follows. The literature review and hypotheses
are described in Section 2. Section 3 describes the article’s research design, including the
research methodology, sample selection, and variable definitions. Section 4 presents an
analysis of the empirical results. Section 5 provides further analysis. Section 6 provides
conclusions and policy recommendations.
Int. J. Environ. Res. Public Health 2023, 20, 447 3 of 16

2. Literature Review and Hypothesis

2.1. Literature Review
2.1.1. Research on AANR
Research on AANR has focused on normative and empirical studies. In terms of nor-
mative research, the system has clear audit objectives, audit subjects, audit scope, and audit
content [8]. The Third Plenary Session of the 18th Party Central Committee proposed to
“explore the preparation of natural resources assets and liabilities, the implementation of the
leading cadres of natural resources assets out of office audit.” It can be seen that the two are
closely related and mutually supportive. As a critical part of AANR, the audit of the natural
resources balance sheet also has differences in terms of audit subject, content, and focus.
Understanding these differences can help better implement the AANR. However, there
are still problems with evaluation under this system, such as the difficulty of coordinating
economic responsibility audits with natural resource audits [9]. Therefore, China should
promote the construction of an audit evaluation system by actively exploring new models
that combine big data technology with audit system implementation science [10]. Based
on the above analysis, normative research on auditing outgoing officials’ management
of natural resource assets system was developed systematically. For empirical studies,
scholars have focused on the impact of the implementation of this pilot system for the
fulfillment of corporate environmental responsibility, transformation and upgrading, and
the cost of equity capital [7,10,11].

2.1.2. Research on Corporate ESG Performance

High-quality development has become the theme of China’s economic and social
development. As the main body of national economic development, whether enterprises
can achieve high-quality development plays a decisive role in promoting high-quality
development of the national economy. The ESG index evaluation system is highly suitable
for the requirements of high-quality development and has attracted widespread attention
from scholars for this reason. Most studies on corporate ESG performance have highlighted
the impact of corporate ESG performance on corporate performance, investment, and
value. A company’s ESG performance can influence its corporate value [12–16], and good
ESG performance and high-quality ESG disclosure can help improve corporate financial
performance [17–20]. Corporate ESG performance also impacts corporate financialization,
financing difficulty, and corporate investment efficiency [21–23]. In addition, a few scholars
focused on the factors influencing the ESG performance of firms. These researchers argue
that local government debt, the characteristics of the market in which the firm is located, the
capital market’s openness, and the managers’ education levels have an impact on corporate
ESG performance [24–27].

2.1.3. Research on the Impact of AANR on Corporate ESG Performance

The AANR has forced regional officials to strengthen monitoring of the pollution
status of enterprises in their jurisdictions, prompting them to focus on their own environ-
mental and social responsibilities. The AANR system can promote corporate environmental
responsibility [11] and social responsibility [28], both of which are indicators that compa-
nies need to refer to when rating their ESG performance. Consequently, implementing
AANR will impact ESG. Thus, how does the implementation of AANR affect the ESG
performance of companies? This question is the central question of this paper. In the
AANR Regulations (Trial) promulgated in 2017, it is stipulated that the subjects of AARN
should be responsible for protecting the natural resource assets and ecological environment.
Based on this background, it is clear that the AARN system is an environmental regulation
policy. Therefore, implementing the AANR will prompt regional leaders to impose environ-
mental regulations on companies in their jurisdictions. However, it remains controversial
whether environmental regulations can positively affect business development. On the
one hand, some scholars argue that environmental regulation can significantly improve
firm performance [29] and promote technological innovation transformation [30], satisfying
Int. J. Environ. Res. Public Health 2023, 20, 447 4 of 16

the “Porter hypothesis” theory. On the other hand, some scholars argue that environmental
regulation increases the financial risk of firms and makes them less financially leveraged.
This perspective is inconsistent with Porter’s hypothesis that environmental regulations
help guide firms increase their financial leverage and actively explore capital markets [31].
In summary, research on AANR and corporate ESG performance has focused on the
economic effects of pilot implementation and the role of corporate ESG performance. No
studies have yet included AANR and corporate ESG performance in the same analytical
framework. In sporadic studies, some scholars have argued that AANR can promote the ful-
fillment of corporate environmental or social responsibility [11,28]. However, AANR is also
limited to analyzing the policy effects of the pilot from a single responsibility perspective,
failing to consider the performance of all aspects of ESG in an integrated manner.

2.2. Hypothesis
The implementation of AANR has prompted companies to pay more attention to their
environmental and social responsibilities. However, companies may not be able to perform
at a good level under high pressure environmental regulations. Under the implementation
of this system, companies will be more inclined to improve their environmental responsi-
bilities [11], making it costly for them to invest in environmental management [32], which
may, in turn, reduce the level of corporate social responsibility implementation and internal
corporate governance, negatively affecting overall ESG performance.
From the perspective of corporate social responsibility implementation, based on the
theory of external information transfer, the “Regulations on the Leading officials’ account-
ability audit of natural resources (for Trial Implementation)” promulgated in 2017 [33]
clearly stipulates that leading cadres should fulfill their responsibilities for environmental
protection and improvement during their tenure. As one of the most important subjects of
environmental pollution and resource consumption, companies will receive more attention
from regional regulators, leading to a rise in corporate risk and sending negative signals
to the market. To mitigate the negative impact of environmental regulations on compa-
nies, companies may reduce their impacts directly by focusing on their environmental
responsibilities in order to address the concerns of investors and attract them [34]. In
this scenario, the role of corporate social responsibility is the same. Empirically, many
companies take socially responsible measures to maintain a good corporate image and
attract investors [35]. In a study on the impact of consumer satisfaction and loyalty in the
private banking sector in Peru, scholars found that corporate social responsibility has a
positive impact on customer loyalty. The fulfilment of social responsibility contributed to
creating preference and loyalty for the company [28]. Improving the fulfilment of corporate
environmental and social responsibility can attract investors and increase customer loyalty.
However, companies have limited resources, and fulfilling these two responsibilities re-
quires organizations to make significant financial investments [32,36], which may hinder
profitability. In 2007, the adoption of Indonesian Law No. 40 sparked a major debate on
the nature of corporate social responsibility. The study found that the implementation of
both environmental and social responsibility increases the cost of operations and consumes
corporate resources. The resulting trade-off is that it is easy for companies to focus on their
own environmental responsibilities at the expense of their social responsibilities.
In terms of the level of internal corporate governance of the business. Firstly, based on
the principal-agent theory, there is an incentive for corporate managers to invest inefficiently
and pursue private gain. There is also an incentive for majority shareholders to usurp
the interests of minority shareholders. When the negative impact of the above-mentioned
actions on the company have the opportunity to be hidden, the incentive increases for
corporate managers and major shareholders to pursue their private interests. Management
and major shareholders may exaggerate the negative impacts of the implementation of
AANR on company operations. The aim of this exaggeration is to hide ineffective invest-
ments and emptying [37,38] and to attribute the negative impacts of these actions on the
company’s operations to AANR, leading to a decline in the level of internal corporate
Int. J. Environ. Res. Public Health 2023, 20, 447 5 of 16

governance. Secondly, based on neoclassical economic theory, the production behavior

of enterprises may lead to negative externality problems, which require effective regula-
tion by the government when the market is unable to regulate the adverse consequences
of negative externalities on social development. It is known that a company’s focus on
fulfilling its environmental responsibilities leads to unproductive cost investments in envi-
ronmental management. Subsequently, the large compliance costs incurred by the policy
will crowd out productive expenditures [39], breaking down the costs of capital structure,
making internal governance more difficult, and increasing operational risk. Some scholars
have studied relevant industries in Europe and the North through earnings and cash-flow
forecasts and found that some companies with good environmental performance have
lower stock returns. This result further shows that companies that have implemented
environmental initiatives and are focused on environmental protection have a lower level
of internal corporate governance and are less able to cope with external shocks [40]. Other
researchers have found that good environmental performance in coal companies reduces
the level of governance within coal companies, resulting in lower corporate earnings [41].
Overall, due to the limited governance efforts and resources of a company, it may not
be possible to take into account the overall development of corporate ESG. Therefore, to a
certain extent, the implementation of AANR will increase the commitments of enterprises
to their own environmental responsibilities while neglecting their fulfilment. Overall, due
to the limited governance efforts and resources of a company, it may not be possible to take
into account the overall development of corporate ESG. Therefore, to a certain extent, the
implementation of AANR will increase the commitment of enterprises to their environ-
mental responsibilities while neglecting the fulfilment of corporate social responsibility
and reducing the level of the internal corporate governance of enterprises. Therefore, the
following hypothesis is proposed in this study:
H1: Auditing outgoing officials’ management of natural-resource-asset pilot implementation hurts
corporate ESG performance.

3. Study Design
3.1. Sample Selection and Data Sources
Pilot audits of AANR began in 2014. Moreover, the number of pilots increased continu-
ously from 2015–2017. This study analyzed the impact of pilot implementation on corporate
ESG performance using listed companies in the pilot region in 2014 as the treatment group
and listed companies in the non-pilot region as the control group. We learned about the first
batch of pilot cities in 2014 by exploring the China Audit Yearbook and the official websites
of the audit offices of provinces, cities, and autonomous regions, including Beijing (Fengtai
District, Yanqing District), Yunnan Province (Dali Bai Autonomous Prefecture), Shaanxi
Province (Xi’an City), Fujian Province (Fuzhou City, Wuyishan City), Guangxi Zhuang Au-
tonomous Region, Jiangsu Province (Lianyungang City, Nantong City), Guizhou Province
(Chishui City, Qiannan Buyi Miao Autonomous Prefecture), Guangdong Province (Shen-
zhen City), Hunan Province (Loudi City), Inner Mongolia Autonomous Region (Chifeng
City, Erdos City, Xing’an League), Hubei Province (Huanggang City, Wuhan City), and
Shandong Province (Qingdao City, Yantai City).
Considering the global financial crisis from 2007–2009 and the impact generated by
COVID-19 in 2020, we selected 2011–2019 as the data interval. We chose Shanghai and
Shenzhen A-share listed companies as the research sample and processed the sample
according to the following steps: (1) Companies without ESG ratings were excluded from
this study based on the 2011 ESG ratings of the Sino-Securities Index. These companies all
went public after 2011, so no 2011 ESG ratings were available for the Sino-Securities Index.
(2) We excluded ST and *ST category companies and (3) listed companies in regions where
the pilot began in 2015–2017 to reduce the impact of subsequent piloting efforts. (4) This
paper excluded companies with missing or abnormal data for key variables and obtained
8892 observations from 988 listed companies from 2011 to 2019. We obtained information
Int. J. Environ. Res. Public Health 2023, 20, 447 6 of 16

on the audit pilot areas through the China Audit Yearbook and the websites of provincial
audit offices and municipal audit bureaus. ESG ratings and other control variables were
obtained from the WIND database. Moreover, the local environmental regulation data were
taken from the China Statistical Yearbook and China Environmental Statistical Yearbook.
Data on provincial and regional innovation levels were obtained from the “China Regional
Innovation Capacity Evaluation Report 2011–2019”. The China Association for Strategic
Research in Science and Technology Development prepared the report in cooperation
with the China Innovation and Entrepreneurship Management Research Center of the
University of Chinese Academy of Sciences. The article uses the Stata version 14.0 software.
All the variables are in logarithmic form to reduce the influence of extreme outliers on the
regression results. Continuous variables with “outliers” were first Winsorized, i.e., at the
2.5% and 97.5% percentile, respectively, before being transformed into logarithmic form.

3.2. Variable Selection and Descriptive Statistics Results

The ESG rating system in China is still in its initial stage. The ESG information
disclosure for different listed companies in China has different indicators and different
calibers, and the data cannot be compared, which makes it infeasible to construct standalone
ESG indicators. Currently recognized third-party ESG rating systems include SynTao
Green Finance (SGF) and Sino-Securities Index, China Alliance of Social Value Investment
(CASVI). Compared to the Sino-Securities ESG Index, other ESG evaluation systems all
have a certain degree of narrow coverage and difficulty in obtaining data. For example,
CASVI and SynTao Green Finance only cover a portion of the constituents and are not yet
live in databases such as WIND and CSMAR. The Sino-Securities ESG Index refers to the
mainstream ESG rating framework in foreign countries and adds indicators with Chinese
characteristics, subdividing the three pillars of environment, society, and governance
into 14 themes and 26 key indicators (See Table 1), with the advantages of adaptation
to the Chinese market, wide coverage, and very timely data. To adapt the ESG rating
framework to the Chinese market and Chinese companies, the Sino-Securities ESG Index
was chosen to represent the ESG performance of companies with reference to the relevant
literature [42–44]. The explanatory variable in this study is corporate ESG performance
(lnESG), which is represented by the Sino-Securities ESG Index. The dependent variable
in this study is corporate ESG performance (lnESG), which is expressed using the Sino-
Securities ESG Index. The Sino-Securities ESG Index is divided into nine levels, from
excellent to poor, including AAA-C. The higher the score, the better the ESG performance
of the company. We manually assigned “AAA-C” to “9-1”.
The core explanatory variable in this study is the interaction term between auditing
outgoing officials’ management of natural-resource-asset pilots and time (TREAT*POST),
which represents whether or not the audit pilot was implemented, setting listed compa-
nies in pilot cities as the treatment group and listed companies in non-pilot cities as the
control group.
In order to control variables that may affect the ESG performance of firms as much
as possible, we refer to relevant studies [42,45,46] and set the following control variables:
(1) the accounts receivable turnover ratio (lnART), measured using the primary business’s
revenue ratio to average accounts receivable; (2) the top 10 shareholders’ shareholding
ratio (lnTOPIC10), measured using the top 10 shareholders’ shareholdings ratio to the total
number of shares; (3) return on assets (lnROA), measured using the ratio of a firm’s net
interest rate to its total assets; (4) Loan of Asset Ratio (lnLEV), measured using the ratio of
total liabilities at the end of the period to total assets at the end of the period; (5) firm size
(lnSIZE), expressed using the natural logarithm of total assets; and (6) regional innovation
level (lnINNOV), measured using the total utility value of China’s regional innovation
capacity from the China Regional Innovation Capacity Evaluation Report. The explanations
of variables and data sources are shown in Table 2, and the results of descriptive statistics
for each variable are shown in Table 3.
Int. J. Environ. Res. Public Health 2023, 20, 447 7 of 16

Table 1. Composition of Sino-Securities ESG Index specific rating indicators.

Three Aspects 14 Themes 26 Key Indicators

Environmental Management System Environmental Management System
A low-carbon plan or goal
Green Management Objectives
Green Management Plan
Environment Carbon Footprint
Green Products
Sustainable products or services
External Environmental Certification Product or company receives environmental certification
Environmental violations Environmental violations
Institutional System Social Responsibility Report
Goals or plans to reduce safety incidents
Health and Safety Negative business events
Trends in operating accidents
Social
Social Responsibility Related Donations
Social Contribution Employee growth rate
Countryside Revitalization
Quality Management Product or company receives quality certification
System Building Corporate self-ESG monitoring
Connected Transactions
Governance Structure
Board Independence
Overall financial credibility
Asset Quality
Operating Risk Short-term debt service risk
Governance Equity Pledge Risk
Quality of Information Disclosure
Violations of laws and regulations by listed companies and
External Discipline subsidiaries
Violations by executives and shareholders
Business Activities Tax Transparency
Note: Data from Sino-Securities ESG Index public official data (https://www.chindices.com/esg-ratings.html#
esg-ratings-methodology (accessed on 21 October 2022).

Table 2. Variable explanation and source.

Variables Variables Explanation Data Sources

ESG performance is categorized into
Data from the Sino-Securities ESG Index
Corporate ESG Performance “C-AAA” grades with a score of
scoring system in the WIND database
“1–9”, respectively
If the company is registered in the pilot
Pilot information from the “China Audit
area, take 1, otherwise take 0; If the
Yearbook” and the official website of the
company is established after the start of
Audit Pilot provincial and municipal audit bureaus;
the pilot take 1, otherwise take 0; The
Company information from
final variable value is the product of these
WIND database
two items
The top 10 shareholders’ shareholdings
Top 10 shareholders’ shareholding ratio Data from WIND database
ratio to the total number of shares
The ratio of a firm’s net interest rate to its
Return on assets Data from WIND database
total assets
Ratio of total liabilities at the end of the
Loan of Asset Ratio period to total assets at the end of Data from WIND database
the period
Primary business’s revenue ratio to
Accounts receivable turnover ratio Data from WIND database
average accounts receivable
Firm size The natural logarithm of total assets Data from WIND database
Total utility value of China’s regional Data from comes the China Regional
regional innovation level
innovation capacity Innovation Capacity Evaluation Report
Int. J. Environ. Res. Public Health 2023, 20, 447 8 of 16

Table 3. Results of descriptive statistics of variables.

Standard
Variables Symbols Observations Average Min. Max.
Deviation
Corporate ESG Performance lnESG 8892 1.325 0.350 0.000 2.079
Audit Pilot TREAT*POST 8892 0.212 0.409 0 1
Top 10 shareholders’ shareholding ratio lnTOPIC10 8892 0.439 0.100 0.086 0.669
Return on assets lnROA 8892 0.711 0.027 0.626 0.776
Loan of Asset Ratio lnLEV 8892 0.353 0.145 0.071 0.623
Accounts receivable turnover ratio lnART 8892 2.319 1.225 0.747 5.991
Firm size lnSIZE 8892 12.940 1.285 5.731 18.480
regional innovation level lnINNOV 8892 3.565 0.364 2.759 4.087

4. Analysis of Empirical Results

4.1. Results of Baseline Regression Analysis
Before the baseline regression analysis, it is first necessary to test the variables for the
presence of multicollinearity problems. The test criterion for multicollinearity is usually
a variance inflation factor VIF value less than 10. Subsequently, it is necessary to select
the appropriate model from among the mixed Ordinary Least Square (OLS), random, and
fixed effects models for regression analysis. After comparing the mixed OLS model with
the fixed effects model, the F-test value of 6.69 with a significance level of 0.000 indicated
that the fixed effects model should be selected. For the choice of the fixed effects model and
random effects model, the Hausman test results showed that the χ2(8) value is 83.80 with a
significance level of 0.000, which indicates that the fixed effects model is better than the
random effects model. Therefore, we used the fixed-effects model as the baseline regression
model in this study. The empirical analysis was conducted using the DID method, and the
results are shown in Table 4. From column (3), it is clear that TREAT × POST is significant
and has a negative coefficient at the 1% level when no control variables are considered.
This result indicates that auditing outgoing officials’ management of natural resource assets
reduces corporate ESG performance. From column (4), it is clear that TREAT × POST is sig-
nificant at a 1% level with a negative coefficient after considering the control variables. This
result also indicates that the implementation of auditing outgoing officials’ management of
natural-resource-asset pilot decreases the ESG performance of firms, verifying the validity
of the hypothesis. In terms of other control variables, Top 10 shareholders’ share-holding
ratio (lnTOPIC10), Return on assets (lnROA), Accounts receivable turnover ratio (lnART),
firm size (lnSIZE), and regional innovation level (lnINNOV) have a significant positive
effect on firms’ ESG performance. This result shows that the higher the top 10 shareholders’
Accounts receivable turnover ratio, the larger the firm size; additionally, the higher the
regional innovation level, the better the ESG performance of the firm. Loan of Asset Ratio
(lnLEV) has a significant negative effect on ESG performance, indicating that as the Loan of
Asset Ratio increases, it will significantly reduce the ESG performance of the firm.
The reasons for such a positive impact are as follows. Firstly, it is clear from re-
source dependence theory that, when the board of directors is larger, the firm has more
resources and is subject to increased scrutiny, thus enabling improved decision-making,
better corporate performance, and improved ESG performance. Therefore, the higher
the top 10 shareholders’ shareholding ratio, the better the ESG performance of the firm.
Secondly, good corporate profitability and operational capabilities are a reflection of a
firm’s level of corporate governance. These two capabilities are measured by the return on
assets and accounts receivable turnover ratio. Therefore, the greater the return on assets
and the higher the accounts receivable turnover ratio, the better the ESG performance
of the firm [47]. Thirdly, a larger firm size implies that the firm has more resources, and
firm size can have a positive impact on a firm’s ESG score, which is consistent with past
research [48]. Fourthly, at higher regional innovation levels, firms are better able to cope
with shocks caused by environmental regulation [49]. Thus, the regional innovation level
shows a positive relationship with corporate ESG performance. In addition, the loan of
Int. J. Environ. Res. Public Health 2023, 20, 447 9 of 16

asset ratio has a significant negative impact on corporate ESG performance, indicating that
as the loan of asset ratio increases, corporate business risk increases and will significantly
reduce corporate ESG performance, similar to the findings of other researchers [46].

Table 4. Baseline regression results.

Average (1) Mixed OLS (2) RE (3) FE (4) FE

−0.056 *** −0.066 *** −0.055 *** −0.058 ***
TREAT × POST
(−5.88) (−4.66) (−3.77) (−3.73)
0.023 0.131 ** 0.187 **
lnTOPIC10 —
(0.64) (2.19) (2.37)
1.448 *** 0.853 *** 0.643 ***
lnROA —
(8.51) (4.52) (3.25)
−0.422 *** −0.344 *** −0.306 ***
lnLEV —
(−13.51) (−7.06) (−4.98)
0.005 0.015 *** 0.021 ***
lnART —
(1.63) (3.17) (2.71)
0.079 *** 0.053 *** 0.033 ***
lnSIZE —
(24.56) (8.34) (3.46)
0.061 *** 0.082 *** 0.144 **
lnINNOV —
(5.54) (3.66) (2.44)
−0.803 *** −0.222 1.337 *** −0.081
Constant term
(−6.51) (−1.27) (432.60) (−0.28)
R-squared 0.117 — 0.004 0.027
Corporate fixed effects — — YES YES
Observations 8892 8892 8892 8892
Number of companies 988 988 988 988
Note: The t-statistic is in parentheses; *** p < 0.01, ** p < 0.05; Standard error using robust standard error.

4.2. Parallel Trend Test

After referring to the research methods of other researchers [11,50,51], we decided to
use the DID method for the study. However, the parallel trend assumption is a prerequisite
for the use of DID in empirical papers. DID can be used only if the target variables in
the treatment and control groups satisfy the parallel trend assumption before policy is
implemented. Conversely, if there is some ex ante difference between the treatment and
control groups, then it represents a high probability that there are other factors influencing
the variation in the explained variables, which is when the triple difference method (DDD)
is used. The results of the parallel trend test in this paper satisfied the condition that the
DID method can be used. In addition, we found that DID models have been widely used
in many areas to test the impact and effectiveness of policy reforms. Examples include
health care bill evaluations, disability employment system evaluations, welfare reform
evaluations, and pre-kindergarten program evaluations [52–55]. The following section
elaborates on our parallel test results.
Based on the results of the benchmark regression, implementing the AANR reduced
corporate ESG performance. However, whether the baseline regression results can gen-
uinely reflect the impact of auditing outgoing officials’ management of natural resource
assets on corporate ESG performance needs to be tested for parallel trends. For the empiri-
cal evidence, the following dummy variables are set: three periods, two periods, and one
period before pilot implementation (pre3, pre2, and pre1, respectively); the current period
of pilot implementation (current); and the first, second, third, fourth, and fifth periods after
pilot implementation (post1, post2, post3, post4, and post5, respectively). Using the model
shown in column (4) of the baseline regression in Table 4, we tested the impacts and results
of the pilot and firm ESG performance based on parallel trends. Figure 1 demonstrates the
results. In the parallel trend test, referring to existing studies [56], the second year before
pilot implementation (i.e., 2012) was used as the baseline group in the test, and the condi-
tion for judging the validity of the parallel trend test was that neither pre3 nor pre1 was
significant. As shown in Figure 1, the confidence interval of the regression coefficients for
 model shown in column (4) of the baseline regression in Table 4, we tested the impacts
and results of the pilot and firm ESG performance based on parallel trends. Figure 1
demonstrates the results. In the parallel trend test, referring to existing studies [56], the
second year before pilot implementation (i.e., 2012) was used as the baseline group in the
test,
Int. J. Environ. Res. Public Health 2023, 20, 447and the condition for judging the validity of the parallel trend test was that 10 neither
of 16
pre3 nor pre1 was significant. As shown in Figure 1, the confidence interval of the regres-
sion coefficients for AANR before pilot implementation contained 0 when controlling for
other variables.
AANR This
before pilot result shows that
implementation the trend
contained of changes
0 when in the
controlling forexperimental andThis
other variables. con-
trol groups remained unchanged. Thus, this study passed the parallel
result shows that the trend of changes in the experimental and control groups remained trend test and ex-
unchanged. Thus, this study passed the parallel trend test and excluded the endogeneityof
cluded the endogeneity problem. The passage of this test also verifies the robustness
the benchmark
problem. regression.
The passage of thisIntest
addition, as seen
also verifies theinrobustness
Figure 1, theof pilot significantly
the benchmark impacted
regression.
Incorporate
addition, ESG performance
as seen in Figure 1,inthethe year
pilot of implementation,
significantly and this ESG
impacted corporate impact continued
performance
inthrough
the year2019.
of implementation, and this impact continued through 2019.

Figure1.1.Parallel
Figure Paralleltrend
trendtest:
test:logarithm
logarithmofofcorporate
corporateESG
ESGperformance.
performance.

4.3. Robustness Tests

The baseline regression results indicate that implementation of the pilot reduced
corporate ESG performance. We used sample exclusion and core explanatory variable
replacement to test the robustness of this result.

4.3.1. Sample Exclusion Method

Implementing the AANR pilot may have significantly impacted resource-based and
heavily polluting firms. However, samples from other industries were not excluded from
the baseline regressions, which may lead to inconsistent regression results. To this end,
we investigated whether AANR also impacted corporate ESG performance, using only a
sample of resource-based and heavily polluting firms. Columns (5) and (6) in Table 5 show
the results.

Table 5. Robustness test results.

Variables (5) FE (6) FE (7) FE (8) FE

−0.073 *** −0.077 ***
TREAT × POST — —
(−2.67) (−2.62)
−0.110 * −0.111 *
lnER — —
(−1.82) (−1.89)
1.320 *** 0.165 1.367 *** 0.257
Constant term
(353.10) (0.34) (43.85) (0.53)
Control variables NO YES NO YES
R-squared 0.004 0.018 0.001 0.016
Corporate fixed effects YES YES YES YES
Observations 4237 4237 4203 4203
Number of companies 524 524 519 519
Note: The t-statistic is in parentheses; *** p < 0.01, * p < 0.1; standard error using robust standard error.

As seen from the table, the baseline regression results hold after the study excludes
the samples of other companies. This result suggests that the baseline regression results are
relatively robust.
Int. J. Environ. Res. Public Health 2023, 20, 447 11 of 16

4.3.2. Core Explanatory Variable Substitution Method

This study uses the AANR pilot as a quasi-natural experiment to explore the impact
on corporate ESG performance. The pilot is an environmental regulation [57] that will
significantly impact regional environmental governance. To verify the robustness of the
baseline regression results, an attempt was made to use the regional level of environmental
regulation (provincial) as a proxy variable for this pilot. To explore whether regional envi-
ronmental regulation affects firms’ ESG performance, the level of regional environmental
regulation (lnER) was measured based on existing practices [58]. The entropy method
was utilized. Regional industrial wastewater emissions, industrial SO2 emissions, and
industrial smoke emissions were used for calculations. Additionally, the test was conducted
using a sample of resource-based and heavily polluting firms. The effects of regional en-
vironmental regulation levels on the ESG performance of firms are shown in columns (7)
and (8) of Table 5. As seen from the table, replacing the core explanatory variables with the
level of regional environmental regulation still has a significant adverse effect on the ESG
performance of firms.

5. Further Analysis
Implementation of AANR pilot reduced corporate ESG performance, as shown by the
Differences-in-Differences method estimation results. However, the reasons for the large
differences in the ESG performance of companies include the large differences between
different regions, as well as the large differences in ownership of different companies.
Therefore, we further explored whether there are significant differences in the effects of
AANR points on corporate ESG performance from two perspectives: different regions and
different types of corporate property rights.

5.1. The Impact of Piloting on Corporate ESG Performance Based on Regional Differences
China is a vast country with significant geographical variability in the level of eco-
nomic development in different regions. Different levels of economic development make
it possible for the implementation of the pilot to show differences in corporate ESG per-
formance. Our study divides China’s 31 provinces into eastern, central, and western
regions. The results are shown in Table 6. As shown in this table, AANR pilots signif-
icantly negatively impacted corporate ESG performance in all three regions. However,
there were differences in the magnitude of the impact. The central region presented the
most significant impacts, followed by the western region, while the eastern region had
the slightest impact. The eastern region had the most negligible impact because economic
development in the eastern region is shifting from being capital-factor driven to innovation-
driven, and the pace of the shift is significantly faster than that in the western and eastern
regions. Additionally, the industrial structure in the eastern region is being optimized, and
a new industrial structure is being built, with science and technology manufacturing and
production services as the core industries. Moreover, the building speed is significantly
faster than that in the western and eastern regions [59]. It can be seen that the economic
development model and industrial structure of the eastern region are more conducive
for enterprises to cope with upgrading and transformation in the development process.
Therefore, the eastern region is better able to cope with the rising cost pressures introduced
by environmental regulations [32] and mitigate the inhibiting effects of the exit audit system
on corporate ESG performance. The central and western regions have lower labor costs,
richer natural resources, and more government incentives for development than the eastern
regions. These advantages have led to more pollution-intensive enterprises in the central
and western regions. Moreover, the number of such enterprises is significantly higher in
the central region than in the western region [60]. The implementation of environmen-
tal regulations has led regional leaders to strengthen the environmental management of
intensive enterprises in their jurisdictions [4]. However, the central region’s economic
development and industrial structure are not as well established as those of the eastern
region. Companies in the central region are unable to upgrade and transform quickly
Int. J. Environ. Res. Public Health 2023, 20, 447 12 of 16

to cope with the higher intensity of environmental regulations. Therefore, the exit audit
system may have a more significant inhibiting effect on the ESG performance of enterprises
in the central region.

Table 6. Results of regional heterogeneity test.

Variables (9) Eastern Region (10) Central Region (11) Western Region
−0.042 ** −0.122 *** −0.084 *
TREAT × POST
(−2.47) (−2.98) (−1.90)
−0.118 −0.965 * 0.772
Constant term
(−0.30) (−1.70) (1.39)
Control variables YES YES YES
R-squared 0.030 0.039 0.025
Corporate fixed effects YES YES YES
Observations 5373 1854 1665
Number of companies 597 206 185
Note: (1) The t-statistic is in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1; standard error using robust standard error.
(2) In the regional division, the eastern region includes 11 provinces (or municipalities directly under the Central
Government): Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and
Hainan. The central region includes eight provinces: Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei,
and Hunan. The western region includes 12 provinces (or autonomous regions and municipalities directly under
the Central Government): Sichuan, Guizhou, Yunnan Shaanxi, Gansu, Qinghai, Chongqing, Inner Mongolia,
Guangxi, Tibet, Ningxia, and Xinjiang.

5.2. The Impact of Piloting on Corporate ESG Performance Based on Differences in Corporate Ownership
Pilot auditing of officials’ management of natural resource assets is an essential in-
stitutional innovation. Implementing this system will have different degrees of impact
on enterprises with different property rights in the pilot area. This study examined the
impact of the pilot exercise on ESG performance under different corporate ownership types
(state-owned and non-state-owned enterprises). The regression results are shown in Table 7.
As shown in this table, AANR has a more significant adverse effect on non-state enter-
prises. In contrast, the effect on state-owned enterprises is insignificant. This low impact
is because state-owned enterprises are better able to cope with external risks than non-
state-owned enterprises and have institutional, human, and resource advantages [61]. In
addition, state-owned enterprises have not yet demonstrated the advantages of innovation
and marketability [62]. However, rich innovation resources are possessed by state-owned
enterprises. Abundant resources make state-owned enterprises better equipped to handle
the external risks associated with environmental governance. Therefore, AANR was found
to significantly negatively impact the ESG performance of non-state enterprises. In contrast,
the impact on state-owned enterprises was not significant.

Table 7. Results of the test for heterogeneity of corporate property rights.

Variables (12) Non-State Enterprises (13) State-Owned Enterprises

−0.073 *** −0.022
TREAT × POST
(−3.63) (−0.98)
−0.301 0.028
Constant term
(−0.74) (0.07)
Control variables YES YES
R-squared 0.038 0.020
Observations 5310 3582
Number of companies 627 445
Note: The t-statistic is in parentheses; *** p < 0.01; standard error using robust standard error.

6. Conclusions and Policy Recommendations

Globally, many countries such as China are pursuing rapid economic development at
the expense of environmental pollution and sacrificing the ecological environment. In order
to follow the global concept of sustainable development, China’s economy has started
Int. J. Environ. Res. Public Health 2023, 20, 447 13 of 16

to shift from high growth to a stage of high-quality development. Enterprises are an

essential part of high economic development. Guiding the high-quality development of
enterprises has become the focus of China’s policy implementation. Therefore, it is of
great theoretical and practical importance to explore the policy implications of AANR
on corporate ESG performance. This study selected listed companies in Shanghai and
Shenzhen A-shares from 2011–2019 as its research sample. The DID method was used to
analyze the impacts of the pilot AANR on corporate ESG performance. We found that
implementation of the AANR pilot had a significant negative impact on corporate ESG
performance, i.e., the implementation of the auditing pilot was not conducive to improving
corporate ESG performance. The robustness of this finding was further demonstrated by
the parallel trend test and robustness test. This result was found to be robust through
a robustness test. The heterogeneity analysis found that the impact of audit pilots on
corporate ESG can vary significantly across corporate ownership and regions. The pilot had
a more significant negative impact on the ESG performance of non-state than state-owned
enterprises. Regionally, the results showed a pattern of differences, with the most significant
impacts observed in the central region, followed by the western region. The most negligible
impact was observed in the eastern region. The results of our research could convince the
government to improve the system of auditing outgoing officials’ management of natural
resource assets and encourage companies to implement ESG concepts. Based on the above
findings, the following policy insights were obtained.
(1) The government should analyze the policy impacts of AANR implementation on micro
enterprises and feed the results back to the relevant government departments. In
the process of promoting the implementation of the system, the government should
strengthen support for enterprises. This measure could mitigate the decline in corporate
ESG performance produced by factors such as higher environmental management costs.
(2) Relevant government departments need to improve their enforcement of AANR and
further implement and improve AANR. The system should also be rationalized based
on differences in property rights. The government should strengthen its support
for non-state enterprises to reduce the negative impacts of the implementation of
the system on the ESG of relevant enterprises and narrow the ESG performance gap
between state-owned and non-state-owned enterprises in the implementation of the
exit audit system. This measures would help obviate the disadvantages of AANR.
(3) Environmental management costs vary from region to region. Therefore, there is a
need for differentiated AANR standards in different regions. Companies in regions
with high economic levels, rapid technological development, and developed support
systems in China have a strong corporate capacity to cope with changes in the external
environment. Over time, these areas could raise the standard of environmental
regulation. Conversely, for regions with low economic levels, slow development of
science and technology, and less-developed support systems, the standard could be
lowered accordingly, enabling progress to be gradual and progressive. In this way,
the differences in ESG performance between Eastern and Midwestern companies in
the implementation of AANR could be reduced.
In addition, we have the following shortcomings and outlook. On the one hand, in this
paper, we analyzed the policy effects of AANR from the perspective of overall corporate
ESG performance. In the future, studying the effects of AANR on E, S, and G indicators
will be one of our research directions. On the other hand, in future studies, we will consider
lengthening the time period of the study and exploring the topic in more depth.

Author Contributions: Conceptualization, Y.Y. and Q.C.; methodology, Y.Y.; software, Y.Y.; validation,
Q.C. and M.H.; formal analysis, Q.C. and M.H.; investigation, Y.Y. and M.H.; resources, Q.C.; data
curation, Q.L.; writing—original draft preparation, Y.Y.; writing—review and editing, Y.Y., Q.C.,
W.L., Q.L. and M.H.; visualization, Q.L.; su-pervision, W.L.; project administration, W.L.; funding
acquisition, W.L. All authors have read and agreed to the published version of the manuscript.
Int. J. Environ. Res. Public Health 2023, 20, 447 14 of 16

Funding: This research was funded by Research on the Spatial and Temporal Differentiation Pattern
of Ecological Tourism Industry in China and Management Response (grant number: 21BGL148).
Conflicts of Interest: We declare no conflict of interest.

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