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Assessing the Moderating Effect of ESG Investment on Climate Variability Risk and Firm Value Nexus

Author

Listed:
  • Mohammed Ahmed Yousef Al-qadhi

    (School of Economics and Management, Xidian University, Xi’an, Shaanxi Province, P.R. China)

  • Shen Zunhuan

    (School of Economics and Management, Xidian University, Xi’an, Shaanxi Province, P.R. China)

  • Umar Farooq

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China)

  • Mosab I. Tabash

    (College of Business, Al Ain University, Al Ain, United Arab Emirates)

  • Abdelhafid Belarbi

    (College of Business, Al Ain University, Al Ain, United Arab Emirates)

  • Zokir Mamadiyarov

    (Department of Finance and Tourism, Termez University of Economics and Service, Termez, Uzbekistan
    Department of Finance, Alfraganus University, Tashkent, Uzbekistan
    Department of Economics, Mamun University, Khiva, Uzbekistan)

Abstract

[Purpose] This study investigates how climate variability risk (CVR) influences the firm value (EW) and examines the moderating role of environmental, social, and governance (ESG) investment in mitigating the impact. The objective is to examine whether firms with stronger ESG engagement demonstrate greater resilience to climate-induced uncertainties. [Design/methodology/approach] A panel dataset of 1,720 U.S.-listed firms covering the period from 2005 to 2020 is utilized. Both Feasible Generalized Least Squares (FGLS) and Generalized Method of Moments (GMM) techniques are employed to examine heteroscedasticity, endogeneity, and dynamic relationships between the variables. [Findings] Our empirical analysis reveals a significant and negative association between CVR and EW, suggesting that heightened climate uncertainty reduces corporate valuation. In contrast, ESG investment exhibits a positive and significant relationship with EW, underscoring its contribution to sustainable value creation. Furthermore, ESG investment moderates the CVR–EW linkage by diminishing the adverse impact of climate variability risk on firm value. [Research limitations/implications] The analysis is confined to the U.S.-listed firms, which may limit the applicability of the findings to contexts characterized by different environmental and regulatory structures. Future studies could expand this scope through cross-country comparisons or sector-specific analyses. [Practical implications] The results underscore the importance for corporate managers, investors, and policymakers to reinforce ESG-driven strategies, as such investments can buffer firms against climate-related risks and support long-term value enhancement. [Originality/value] This study uniquely incorporates ESG investment as a moderating mechanism within the CVR–EW nexus, offering novel insights into how sustainability-oriented strategies transform climate risk into value-enhancing opportunities in corporate finance. The findings contribute to the Decision Sciences literature by demonstrating how ESG-based decision frameworks can improve corporate resilience and strategic responses to climate uncertainty, thereby supporting more informed, risk-aware corporate policies.

Suggested Citation

  • Mohammed Ahmed Yousef Al-qadhi & Shen Zunhuan & Umar Farooq & Mosab I. Tabash & Abdelhafid Belarbi & Zokir Mamadiyarov, 2026. "Assessing the Moderating Effect of ESG Investment on Climate Variability Risk and Firm Value Nexus," Advances in Decision Sciences, Asia University, Taiwan, vol. 30(1), pages 40-71, March.
    • Handle: RePEc:aag:wpaper:v:30:y:2026:i:1:p:40-71
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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