In an era marked by intensifying environmental degradation and the mounting urgency of sustainable development, the role of corporate actors in environmental protection has garnered growing attention. Nowhere is this dynamic more consequential than in China, where decades of rapid industrialisation have left a significant ecological footprint. Against this backdrop, this study investigates how state capital participation (SCP) influences the environmental engagement of privately controlled listed firms in China. While extensive research has examined environmental practices among state-owned enterprises or large multinational corporations, the nuanced effects of minority state ownership in private firms remain underexplored. Understanding this dimension is crucial for developing theoretical perspectives on corporate governance and informing policies to align private sector incentives with public environmental objectives.

The study adopts a methodologically rigorous approach to explore this relationship, drawing on an expansive dataset comprising 20,133 firm-year observations between 2009 and 2021. Three distinct indicators are employed to capture the multifaceted nature of corporate environmental engagement (CEE), along with two separate measures of SCP. This multidimensional design ensures that the analysis is both comprehensive and granular. A difference-in-difference (DiD) regression framework is the backbone of the empirical strategy, allowing the researchers to isolate the causal effects of SCP while accounting for broader trends and firm-specific factors. Incorporating fixed effects and a range of control variables strengthens the robustness of the findings and mitigates endogeneity concerns. By doing so, the study ensures that its conclusions are not merely correlational but point toward a meaningful causal relationship.

The findings reveal that SCP significantly enhances corporate environmental engagement. Firms with state capital involvement are more likely to increase their environmental expenditure, report better environmental performance, and achieve higher ratings of ESG (Environmental, Social, and Governance). Furthermore, these firms exhibit greater capacity to undertake environmental investments, partly driven by increased media visibility, online attention, and analyst scrutiny. These external factors may create a reputational incentive that encourages sustained environmental commitment. The positive effects of SCP are particularly salient in firms that are partially owned by local governments, have a larger number of state shareholders, or maintain long-term relationships with state investors. Additionally, the absence of politically connected managers amplifies SCP’s impact, suggesting that technocratic management better align with environmental objectives than politically motivated leadership.

Another striking dimension of the study is its focus on firms operating within heavily polluting industries. In these contexts, minority state ownership has an especially pronounced effect, reducing toxic emissions and enhancing financial performance. This finding contradicts the often-assumed trade-off between environmental responsibility and profitability, indicating that strategic environmental engagement can yield dual dividends. Moreover, the study challenges the traditional binary framework that contrasts state-owned and private enterprises by showing that even minority state involvement can reshape corporate priorities. By providing access to resources and attracting public and financial scrutiny, SCP acts as a lever to raise environmental standards, particularly in firms that might otherwise lack the motivation or capacity to pursue such goals independently.

The implications of these findings are multifaceted. For policymakers, the research highlights the potential of using state capital as a strategic tool to drive sustainability in the private sector. Rather than relying solely on regulations or subsidies, governments can adopt more subtle yet effective mechanisms—such as acquiring minority stakes—to influence corporate behaviour. This approach may prove especially valuable in sectors resistant to traditional forms of regulation or where enforcement is difficult. Local governments, in particular, appear well-positioned to implement such strategies given their proximity to regional environmental issues and economic conditions. For business leaders, the study suggests that partnering with state investors can enhance a firm’s environmental credentials and contribute to financial success, thus creating a mutually reinforcing cycle of responsible and profitable behaviour.

Ultimately, this research provides a timely and compelling contribution to environmental governance and corporate responsibility literature. It reveals how state involvement in private enterprise can catalyse meaningful environmental change when carefully designed and implemented. Moving beyond simplistic dichotomies of public versus private ownership, the study opens the door to more nuanced understandings of how hybrid ownership models can support the transition towards sustainability. For scholars, it offers a robust empirical framework to explore these dynamics further; for practitioners and advocates, it presents a promising mechanism to reconcile economic growth with environmental stewardship in one of the world’s most pivotal economies.

More information: Shaojie Lai et al, State capital participation and corporate environmental engagement: evidence from privately-controlled listed firms in China, China Finance Review International. DOI: 10.1108/CFRI-06-2024-0350

Journal information: China Finance Review International Provided by Shanghai Jiao Tong University Journal Center