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

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  • Liu, Yang
  • Dong, Kangyin
  • Nepal, Rabindra
  • Afi, Hatem

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.

Suggested Citation

  • Liu, Yang & Dong, Kangyin & Nepal, Rabindra & Afi, Hatem, 2025. "How do climate risks affect corporate ESG performance? Micro evidence from China," Research in International Business and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925001114
    DOI: 10.1016/j.ribaf.2025.102855
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    Cited by:

    1. Lei, Shaohai & Chen, Yilan & Xia, Dehua, 2025. "Does climate risk disclosure affect stock liquidity?," Research in International Business and Finance, Elsevier, vol. 80(C).
    2. Cheng, Teng Yuan & Dong, Liang & Dong, Yuxuan & Lam, Keith S.K., 2025. "How does climate risk affect corporate financialization?," Research in International Business and Finance, Elsevier, vol. 78(C).
    3. Zhao, Xuejin & Yao, Xinbin & Huang, Jiayi, 2025. "Climate risks and financial stability: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    4. Chen, Lusi & Li, Shinan & She, Zhili, 2025. "A study on the impact of artificial intelligence applications on corporate green technological innovation: A mechanism analysis from multiple perspectives," International Review of Economics & Finance, Elsevier, vol. 103(C).
    5. Yuping Song & Lu Lu & Jingxuan Liu & Jingyi Zhou & Xin Wang & Fangfang Li, 2025. "A Study of the Factors Contributing to the Impact of Climate Risks on Corporate Performance in China’s Energy Sector," Sustainability, MDPI, vol. 17(11), pages 1-26, June.
    6. Shi, Xiuping & Liu, Hao, 2025. "How does digital supply chain transformation enhance sustainable performance of renewable energy enterprises?," International Review of Economics & Finance, Elsevier, vol. 103(C).
    7. Wang, Yuhui & Huang, Zhen & Jia, Ming, 2026. "Firm-level real climate risk, institutional investors, and green innovation," Research in International Business and Finance, Elsevier, vol. 81(C).
    8. Ran Yi & Yunfan Zhang & An Chen, 2026. "Does corporate climate risk promote climate response actions? Empirical evidence from China," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 31(3), pages 1-33, March.

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    Keywords

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    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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