How do climate risks affect corporate ESG performance? Micro evidence from China

Yang Liu, Kangyin Dong (), Rabindra Nepal and Hatem Afi

Research in International Business and Finance, 2025, vol. 76, issue C

Abstract: With the increasing exposure of firms to climate-related risks, understanding the relationship between climate risk concerns and corporate Environmental, Social, and Governance (ESG) performance is critical. This study investigates the impact of climate risk concerns on ESG performance, with a particular focus on the mediating roles of green technological innovation and corporate governance, as well as the moderating effect of financial constraints. Using a firm-year fixed effects model and panel data from 2293 A-share listed companies in China from 2010 to 2021, our research indicates that heightened climate risk concerns significantly improve firms’ ESG performance. This effect is more pronounced for state-owned enterprises, firms in highly polluting industries, and companies located in the Midwest region. This study also reveals that green technological innovation and corporate governance act as key transmission channels, while financial constraints amplify the positive impact. These findings highlight the necessity of integrating climate risk considerations into corporate decision-making and suggest that targeted policies, such as financial incentives for green innovation and stricter governance frameworks, could further enhance firms’ ESG outcomes.

Keywords: ESG; Climate risk concerns; Green technological innovation; Financial constraints; China (search for similar items in EconPapers)
JEL-codes: G34 L25 O33 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925001114

DOI: 10.1016/j.ribaf.2025.102855

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