Companies with strong ESG (environmental, social, and governance) performance are proving far more successful at expanding their research and design activities overseas, according to new analysis from
Durham University Business School. The study finds that firms demonstrating robust environmental, social and governance standards gain a credibility advantage that makes them more attractive to international partners, investors and government bodies.
The research team argues that strong ESG performance acts as a signal of trustworthiness in foreign markets. By enhancing a company’s reputation, ESG credentials help to build legitimacy and strengthen its position when seeking to establish R&D operations abroad. This effect, they say, increases the feasibility of overseas expansion at a time when global scrutiny of corporate conduct continues to intensify.
The study, led by Professor Xinming He of Durham University Business School with collaborators Xi Zhong of Shenzhen University and Jianquan She of Guangdong University of Technology, examined 1,180 firm‑year observations from publicly listed Chinese companies between 2007 and 2023. By tracking changes in ESG performance over time alongside international R&D activity, the researchers identified a consistent link between strong ESG practices and greater overseas innovation investment.
Their findings suggest that companies with credible ESG records are better positioned to secure partnerships, attract foreign investment and obtain government support in host countries. For business leaders, the results highlight ESG as an increasingly important lever for accessing advanced innovation ecosystems across global markets.
Real-world outcomesHe said: “Shareholders should push companies to integrate ESG into their core business strategy, not treat it as a box‑ticking exercise. 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 environmental violations can quickly erode any credibility gains. Companies found to be breaching environmental regulations risk undermining their ESG standing, making international collaboration and access to innovation funding far more difficult. To avoid this, the study recommends robust environmental management systems, regular audits, comprehensive staff training and independent verification to ensure any ESG claims remain credible.
The analysis notes a further complication for state‑owned enterprises. ESG signals from these firms are often interpreted by foreign stakeholders as compliance‑driven rather than voluntary or mission‑led, reducing their effectiveness in supporting overseas R&D plans. The researchers suggest that state-owned companies may need to adopt alternative strategies, such as acquiring foreign technology or working more closely with local authorities and businesses in host countries, to progress their international innovation goals.
For policymakers, the findings indicate that strengthening ESG reporting standards and incentivising demonstrable improvements could accelerate international technology collaboration. As ESG becomes an increasingly universal framework for assessing corporate responsibility, the study concludes that companies demonstrating authentic and measurable progress stand to gain a significant competitive edge — and may be best placed to lead the next wave of global innovation.