Climate Policy Uncertainty and Corporate Performance in South Africa: The Moderating Role of ESG

This study investigates the impact of Climate Policy Uncertainty (CPU) on corporate financial performance, with particular emphasis on the moderating role of Environmental, Social, and Governance (ESG) practices. Using a panel of South African listed firms over the period 2014-2023, we estimate panel regression models and perform robustness checks through the two- step GMM method. The findings reveal that CPU exerts a significant negative effect on accounting-based performance indicators (ROA and ROE), while its influence on market-based performance (Tobin's Q) remains less conclusive. ESG scores exhibit a weak and mixed direct effect; however, the interaction term (CPU x ESG) demonstrates that stronger ESG performance can mitigate the adverse consequences of climate uncertainty, consistent with the resilience and stakeholder theories. Additional analyses confirm heterogeneity across subgroups, showing a more pronounced impact on firms with low ESG scores and smaller size, as well as notable differences between the COVID-19 crisis period and the post-crisis phase. This research provides an original contribution by examining the South African context, an emerging economy highly exposed to climate-related risks. The results offer important implications for corporate managers, investors, and policymakers, highlighting the role of ESG practices in enhancing firms' resilience to the growing uncertainty surrounding climate policies.