Can heterogeneous environmental policies mitigate ESG divergence? -Based on corporate green innovation and bleaching green behavioral options

ESG divergence weakens capital market allocation efficiency, and whether environmental policies can reduce ESG rating divergence by guiding corporate green behavior is a topic of concern. This study examines the effects and mechanisms of diverse environmental legislation on corporate ESG divergence using a sample of Chinese Ashare listed businesses from 2016 to 2023. (1) Punitive environmental policies make corporate ESG ratings more divergent, whereas incentive-based policies have the opposite effect; (2) Punitive environmental policies exacerbate disagreements by "forcing" firms to engage in green technological innovation, while incentive-based environmental policies mitigate disagreements by "motivating" firms to engage in greenwashing behavior; (3) Innovatively, the study concludes that the distorting effects of heterogeneous environmental regulations on corporate ESG divergence are mitigated and corrected in an environment with strong green financing and efficient government oversight. According to this paper's conclusions, environmental protection agencies should strengthen the coherence of their policy direction and collaborate to create a powerful force in the formulation of public policy.