Influence of ESG on corporate debt default risk: An analysis of the dual risk scenarios

Yuping Shang, Zisheng Xiao, Asma Nasim and Xin Zhao

Journal of International Money and Finance, 2025, vol. 151, issue C

Abstract: In the context of sustainable development and high-quality corporate growth, this study examines the impact of Environmental, Social, and Governance (ESG) performance on corporate debt default risk among Chinese A-share listed corporates. It explores the mechanisms by which ESG performance influences debt risk, including diversification of funding sources, optimized capital utilization, and improved market supply–demand dynamics. The mitigating effect of ESG on debt risk is more pronounced in state-owned enterprises, large corporations, and corporations with robust internal controls, especially under conditions of low marketization and adverse macroeconomic circumstances. Moreover, in light of the global emphasis on climate risks, this study assesses their significant influence on debt default risk, particularly through the environmental aspect of ESG. Innovatively, this study incorporates dual climate risk scenarios to comprehensively analyze the interaction between ESG performance and debt default risk. Findings indicate that ESG performance significantly lowers debt risk in corporates facing higher internal climate challenges, while the effects on external supply chain climate risks are less evident. These insights contribute to the theoretical understanding of ESG and financial risk management and provide practical strategies for corporates pursuing sustainability in an unstable climatic environment.

Keywords: ESG; Debt Default Risk; Dual Climate Risks; Sustainable Development (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:151:y:2025:i:c:s0261560624002353

DOI: 10.1016/j.jimonfin.2024.103248

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