The rapid advancement of technology has had various effects on human society. One significant impact is environmental pollution caused by this development, which can be mitigated by implementing more eco-friendly production techniques. Government policies also play a crucial role in influencing the pace and direction of technological development, thereby shaping economic progress. While regulations in different countries protect ESG (Environmental, Social, and Governance) industries to ensure environmental preservation and uphold specific societal values, distortions in these policies can lead to inefficiencies in the allocation of production resources, resulting in market inefficiencies and “resource misallocation.” The model employs a dynamic framework focusing on firms’ decisions to enter and exit the market under varying borrowing distortions. Bootstrap methods are used to simulate the impact of changes in borrowing distortions. The findings indicate that an increase in borrowing distortion reduces social welfare, while a decrease in borrowing distortion enhances social welfare. The study observes that market distortions caused by policies can discourage further research and development, ultimately leading to a decline in social welfare.