*5.2. Discussion*

To make ESRs more sustainable, the government could potentially raise taxes and other penalties. Through punitive measures such as tax increases, the government can also force companies with poor ESG performance to improve their performance. The government should also actively promote an ESG disclosure system that is broadly applicable so that businesses, investors, and the general public pay more attention to the ESG performance of businesses and support the transition to a green economy. The main contributions of this study are as follows. First, it responds to the debate surrounding the effectiveness of ESG in emerging markets by providing new insights into the relationship between corporate ESG ratings and green innovation and their mechanisms of action. Existing research on ESG ratings has focused on developed markets that have developed relatively mature concepts. For example, Chouaibi (2021) analyzed the role of ESG practices in the UK and German systems in improving financial performance by benefiting from green innovation [77]. Meanwhile, Cohen (2020) reached a different conclusion and pointed out the opposite relationship between ESG scores and green innovation in the U.S. energy sector [78]. Existing studies are limited and focus on developed countries with relatively mature ESG systems. In contrast, emerging markets are still in their infancy due to significant institutional differences. The findings of this study help to ascertain whether ESG ratings have contributed to the green transition and enriched the results related to ESG practices in developing countries. Second, this study further expands the influencing factors of green innovation beyond the mainstream research paradigm of government-level environmental regulations on green innovation, with special emphasis on third-party rating agencies, providing new perspectives and empirical support for the guiding role of ESG ratings on green innovation. Third, this study expands the scope of green innovation measurement to compensate for the existing literature's preference for green innovation in terms of quantity rather than quality. Drawing on detailed patent census data in China, this study uses green patent citations to measure the quality of green innovation, which is conducive to deriving more meaningful research questions, emphasizing objective data on green innovation patent applications, and improving their impact. Fourth, this study analyzes the

moderating mechanism between ESG ratings and green innovation through the external institutional environment and internal redundant organizational resources, deconstructs the internal logic, extends the research boundary, and provides a realistic reference for the promotion of ESG ratings by examining the heterogeneity in the Chinese context from multiple dimensions such as institutions, markets, and firms as emerging markets continue to develop.

This study provides a new theoretical framework for corporate green innovation by highlighting the importance of the external institutional environment and internal redundant organizational resources for corporate green innovation. However, there are still some limitations in our research.

First, the primary limitation of our study is linked to the nature of our sample, which only included companies in China, and companies listed in other emerging countries should be included. Meanwhile, other factors influencing ESG performance (e.g., systematic risk and board structure) should also be taken into consideration in further research. From a future research perspective, we could examine other factors affecting the market. In the future, we could obtain data from other third-party platforms and involve more samples with different languages. Some alternative variables could measure green innovation more than the patent application measurement, and updated research data could replace the relevant indicators to make a comprehensive measurement of the level of green innovation.

Second, the findings of this paper are also limited in terms of the mechanisms that enhance corporate green innovation, which need to be explored and further tested. In terms of future research directions, in relation to the moderating mechanisms, although this study investigated the institutional environment and redundant organizational resources as the moderating factors, other factors such as political capital (Lin et al., 2015), environmental ethics (El-Kassar and Singh, 2019), or top management characteristics (Galbreath, 2019) could also influence the relationship between the ESG ratings and corporate green innovation. In addition, we plan to conduct a heterogeneity analysis concerning the discrepancies in diverse industries and property rights to reveal the impact level of ESG ratings on corporate green innovation.

**Author Contributions:** H.L. and C.L. conceived this topic and designed the empirical methodology; Writing—original draft, H.L.; Writing—review and editing, H.L. and C.L. All authors have read and agreed to the published version of the manuscript.

**Funding:** FRG(FRG-22-056-MSB) and iFRG(FRG-22-004-INT), Macau University of Science and Technology.

**Institutional Review Board Statement:** Not applicable.

**Informed Consent Statement:** Not applicable.

**Data Availability Statement:** Not applicable.

**Conflicts of Interest:** The authors declare no conflict of interest.

#### **References**

