Does Analyst Coverage Affect Corporate ESG Performance? Evidence from China

In the new wave of sustainable finance, firms are under increasing pressure from stakeholders to engage in ESG activities, among which the role of financial analysts is a key driving factors of corporate sustainability. This paper investigates the effect of analyst coverage on corporate environmental, social, and governance (ESG) performance. Using the dataset of listed firms in China from 2009 to 2020, we find that analyst coverage significantly improves the target firm’s ESG scores. We validate three non-mutually exclusive channels through which analyst coverage encourages ESG engagement: (1) encourage firms’ awareness on ESG issues via ESG-oriented information production; (2) alleviate ESG undervaluation and strengthen the financial relevance of ESG performance; (3) mitigate financial constraints to support corporate ESG activities. We establish causality with an instrumental variable estimation and a difference-in-differences approach. Our findings highlight the information intermediary role of financial analysts in driving corporate sustainability