Strong ESG performance linked to overseas R&D expansion

Companies with strong environmental, social, and governance credentials are more likely to expand research and development operations overseas, according to new academic research that positions ESG performance as an increasingly important signal in global innovation markets.

The study, conducted by Durham University Business School, finds that companies with higher ESG performance are significantly more successful in establishing and scaling R&D activity beyond their home markets. The effect is attributed to enhanced credibility and reputation abroad, which makes companies more attractive partners for investors, governments, and research collaborators.

The research was led by Xinming He, Professor of Marketing at Durham University Business School, alongside Xi Zhong of Shenzhen University and Jianquan She of Guangdong University of Technology.

Analysing 1,180 firm-year observations from Chinese listed companies between 2007 and 2023, the researchers examined how changes in ESG performance correlated with firms’ overseas R&D investment. The dataset allowed the team to track ESG scores over time and compare them against the scale and frequency of international R&D expansion.

According to the findings, strong ESG performance acts as a form of reputational capital in foreign markets. Companies with credible ESG records were better positioned to attract international investors, secure research partnerships, and access government support in host countries. These factors, the researchers argue, lower the barriers to overseas innovation activity and reduce perceived risk for local stakeholders.

As scrutiny of corporate behaviour intensifies globally, the study suggests ESG is becoming a practical enabler of international growth rather than a compliance exercise. For company owners and boards, the research highlights ESG as a strategic lever for accessing global innovation ecosystems.

“Shareholders should push companies to integrate ESG into their core business strategy, not treat it as a box-ticking exercise,” Professor He says. “Instead of simply reporting ESG policies, companies should focus on tangible results, such as cutting carbon emissions or improving working conditions. Measuring real-world outcomes helps firms build trust, innovate sustainably, and remain competitive in global markets.”

The researchers also warn that ESG-driven advantages can be quickly undermined by environmental breaches. Companies that violate environmental regulations risk damaging their international credibility, making it harder to collaborate across borders or secure innovation funding. To mitigate this, the study emphasises the need for robust environmental controls, regular audits, staff training, and independent verification of ESG claims.

The analysis notes a further distinction between ownership models. ESG signals from state-owned enterprises were often interpreted by overseas partners as compliance-driven rather than value-driven, reducing their effectiveness as indicators of long-term commitment. As a result, these organisations may need alternative strategies to support international R&D, such as acquiring foreign technology assets or working more closely with local governments and businesses in host markets.

Beyond corporate strategy, the findings carry implications for policymakers. Strengthening ESG reporting standards and incentivising verifiable improvements could accelerate cross-border innovation by increasing trust between international partners and reducing information asymmetries.

As ESG frameworks continue to converge globally, the study concludes that companies demonstrating authentic, measurable progress are more likely to shape the next phase of international innovation.