The study empirically examines the impact of firm digital transformation (DT) on the performance of Chinese-listed enterprises in the areas of environmental, social, and governance (ESG) from 2013 to 2022. We utilized OLS, IV 2SLS causal mediating effect, and moderating effect models to analyze the linkages and deep mechanisms between corporate DT and ESG performance. The empirical findings demonstrate that (i) DT has an effectively positive effect on the performance of firms’ ESG; (ii) DT enhances firms’ ESG performance by enhancing information transparency (TRANS), fostering green innovation (Green), and strengthening internal control (Inter) mechanisms; moreover, (iii) According to the study, common institutional ownership (CIO) effectively facilitates the positive effects of the DT impact on the ESG performance of listed enterprises, and firms’ subjective perception of economic policy uncertainty (SEPU) negatively influences the effect of digital change on firms’ ESG performance; (iv) the impact of DT on ESG performance is more significant in the listed companies of western region and state-owned enterprises. Our findings provide valuable insights into whether and how DT affects the firms’ ESG performance, providing practical recommendations for corporate managers and government decision-making agencies.

Purpose: Although prior studies have examined the relationship between firms' digital orientation (DO) and environmental, social and governance (ESG) performance, their findings are mixed. The potential nonlinear nature of this relationship, particularly in heavily polluting industries, has been largely overlooked. This study addresses this gap by investigating an inverted U-shaped DO–ESG relationship. It draws on dynamic capability theory to explain the performance-enhancing role of DO and integrates the resource-based view, attention-based view and organizational inertia theory to explain how excessive DO may ultimately erode ESG performance. Design/methodology/approach: This study develops a multidimensional index of DO, encompassing strategic, governance, resource, and digital innovation realization. Using panel data from Chinese-listed heavily polluting firms from 2013 to 2022, we apply fixed-effects OLS models. Robustness is assessed through instrumental variable regression, natural spline estimation and generalized additive models (GAM), among other methods. Findings: The results reveal an inverted U-shaped relationship between DO and ESG performance, suggesting that excessive DO may diminish ESG returns. Green innovation and information transparency act as mediators, while institutional investor site visits moderate the relationship between DO and ESG performance. Originality/value: This study advances the literature by documenting and validating the nonlinear effects of DO on ESG outcomes. It develops and validates a comprehensive DO measurement framework and uncovers both mediating and moderating mechanisms in ESG-salient, heavily polluting sectors. The findings offer practical guidance for managers, policymakers, and institutional investors seeking to align digital development with long-term sustainability objectives.