Corporate ESG performance when neighboring the Environmental Protection Agency

Practicing ESG concept is a necessary way for sustainable development of enterprises and an important hand in realizing high-quality economic growth. This paper introduces the hypothesis of “distance attenuation effect” of geo-economics into the research field of corporate ESG performance, and systematically examines the impact of neighboring the Environmental Protection Agency (EPA) on corporate ESG performance by using the data of China's listed companies in the manufacturing industry from 2011 to 2021. It is found that being a neighbor to the EPA has a significant inhibitory effect on corporate ESG performance, which was reduced by 0.196% when the distance between the two was reduced by every 1 km. And the inhibitory effect has a stepwise decreasing characteristic, i.e., it is the strongest at the level of county EPA, followed by municipal EPA, and the smallest at the level of provincial EPA. The mechanism analysis shows that the rent-seeking behavior caused by neighboring with EPA is an important reason for the decline of ESG performance, which verifies the “distance attenuation effect” of rent-seeking difficulty. Although neighboring the EPA improves firms' financial performance, it greatly harms firms' environmental, social and governance performance, which confirms the profit-seeking motive of firms' rent-seeking. In addition, the deterrent effect generated by third-party supervision and digital supervision can inhibit corporate rent-seeking to a certain extent, which helps weaken the negative impact of neighboring the EPA on corporate ESG performance. •Neighboring the EPA has a significant inhibitory effect on corporate ESG performance.•The rent-seeking behavior caused by neighboring with EPA is an important reason for the decline of ESG performance.•Neighboring the EPA improves firms' financial performance and greatly harms firms' environmental and social performance.•Public and media attention can helps to weaken the negative impact of being a neighbor of the EPA on firms' ESG performance.