Under the wave of “Dual Carbon”, ESG has gradually become a critical standard for measuring corporate sustainable development?. As pillars of socioeconomic progress, enterprises should focus not only on their operational performance but also commit to environmental governance and sustainable practices. In this context, the employee stock ownership plan (ESOP)—an innovative and incentive mechanism—grants employees company equity. This mechanism not only aligns the interests of shareholders and employees but also enhances employees’ motivation and creativity, encouraging their active participation in corporate environmental and social responsibility initiatives. Therefore, exploring the relationship between ESOP and corporate ESG performance holds significant implications. Based on self-determination theory, this study utilizes panel data from China’s A-share listed companies (2014–2023) to examine the impact of the ESOP on corporate ESG performance across three dimensions: environment, society, and governance. The results demonstrate that the ESOP significantly enhances corporate ESG performance through capability and motivation. These findings remain robust after a series of robustness tests. Mechanism analysis reveals that ESOP improves ESG performance by accelerating corporate green transformation, boosting employee satisfaction, and mitigating management myopia from three dimensions of environment, society, and governance. Further research finds that from the perspective of the characteristics of contract elements of the employee stock ownership plan, the employee stock ownership strategy with higher employee subscription rates or longer shareholding time has a greater effect on the improvement of the ESG performance of enterprises. Heterogeneity analysis finds that the employee stock ownership plan has a stronger role in promoting the ESG performance of enterprises in high-polluting enterprises, low-information transparency enterprises, and high-marketization enterprises. The marginal contributions of this study are as follows: first, the existing research on the economic effects of ESOP implementation mostly focuses on short-term economic effects, such as financing constraints, financial information quality, and corporate supervision, and the existing research on long-term effects mostly focuses on enterprise upgrading and enterprise innovation. In contrast, the relationship between the ESOP and corporate ESG performance remains underexplored. Therefore, this paper studies the economic consequences of ESOP from the perspective of ?corporate ESG performance, which enriches the existing literature. Secondly, this paper reveals the potential mechanism of the employee stock ownership plan on ?corporate ESG performance from three dimensions of ESG and provides strong evidence for understanding how the employee stock ownership plan improves ?corporate ESG performance. In addition, based on the analysis of contract factor characteristics of the employee stock ownership plan, this paper shows that the employee stock ownership plan with higher employee subscription rates or longer duration has a stronger effect on ?corporate ESG performance, which provides new ideas for subsequent research. Finally, this paper discusses the heterogeneous effect of the employee stock ownership plan on ?corporate ESG performance from three perspectives: enterprise type, information transparency, and marketization degree, deepening the existing research. This study not only advances theoretical knowledge about the role of employees in improving ESG performance but also holds practical significance for China’s green transformation and the realization of the “Dual Carbon” goals.