Biodiversity risk or climate risk? Which factor affects corporate ESG rating divergence

Feng He, Lin Duan, Brian Lucey and Jing Hao

International Review of Financial Analysis, 2025, vol. 104, issue PA

Abstract: This study compares the impact of firm-level climate risk and biodiversity risk on corporate environmental, social, and governance (ESG) rating divergence among Chinese listed firms. Analyzing a comprehensive dataset from 2015 to 2022, we provide novel empirical evidence that firm-level biodiversity risk exposure exerts a significant mitigating effect on corporate ESG rating divergence. In contrast, the effect of climate risk on ESG divergence does not show such statistically significant negative impact, even after considering potential lag effects. Furthermore, we show that biodiversity risk exposure reduces ESG divergence through enhancing ESG information disclosure and improving transparency. We also find the mitigating effect is more pronounced in firms with lower analyst and research reports coverage, and in firms that independently or voluntarily disclose ESG reports. These findings prove that firm-level biodiversity risk management has a significant impact on corporate sustainable performance assessment.

Keywords: Corporate biodiversity risk exposure; Climate risk; ESG divergence; Information transparency; Sustainability (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:104:y:2025:i:pa:s1057521925003898

DOI: 10.1016/j.irfa.2025.104302

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