The growing significance of sustainable development has underscored the importance of integrating corporate sustainability indicators into corporate strategies. As external stakeholders increasingly emphasize corporate environmential performance, social responsibility and governance (ESG), understanding its impact on corporate value becomes essential, especially in emerging markets like China. This research aims to bridge these knowledge gaps by empirically investigating the influence of ESG ratings on firms’ value among Chinese listed firms, with a special emphasis on the mediating roles played by financial distress and financing constraints. By analyzing data from listed companies of China over the period 2018 to 2022, this research explores the correlation between firms’ value and ESG ratings. The findings indicate a positive association between firms’ value and ESG ratings. Enhanced ESG ratings directly boost market valuation and indirectly elevate firm value by mitigating financing constraints and financial distress. Further analysis reveals the positive effects of ESG ratings are more noticeable in industries that are not heavily polluting and in state-owned enterprises. This research provides valuable insights for enterprise management by systematically examining how ESG ratings contribute to corporate value through the mitigation of financial distress and constraints, while also highlighting the variations in ESG strategy implementation across different types of enterprises.