IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i11p5139-d1671218.html
   My bibliography  Save this article

A Study of the Factors Contributing to the Impact of Climate Risks on Corporate Performance in China’s Energy Sector

Author

Listed:
  • Yuping Song

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Lu Lu

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Jingxuan Liu

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Jingyi Zhou

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Xin Wang

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Fangfang Li

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

Abstract

As the climate crisis intensifies, corporate operations face unprecedented challenges from increasing climate risks, necessitating rigorous investigation into their resultant economic ramifications. This study employs text analysis and machine learning methods to construct climate risk perception indicators for a sample of China’s A-share listed energy sector firms (2014–2023). A two-way fixed effects panel model is then applied to study the impact of climate risk perception on corporate performance in the energy industry. The empirical results demonstrate that in China’s energy sector, a 1% rise in climate risk perception corresponds to a 0.104% decline in ROE, mediated through diminished financial flexibility (β = −0.075 **) and elevated R&D intensity (β = 0.649 ***). Moderating effect testing indicates that firms with higher levels of administrative spending effectively buffer against the adverse effects of heightened climate risk perception. Furthermore, this study shows that climate risk perception has more pronounced negative effects on corporate performance in state-owned enterprises (β = −0.113 **), heavily polluting enterprises (β = −0.131 *), carbon-intensive industries, and non-carbon trading pilot regions (β = −0.119 ***). These findings empirically demonstrate how climate risk perception reshapes corporate resource allocation and management, ultimately affecting performance. This study also proposes policy recommendations to enhance corporate climate risk responsiveness, promote technological innovation, accelerate the energy sector’s green transition, optimize corporate capital structure, and advance sustainable development goals.

Suggested Citation

  • 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.
  • Handle: RePEc:gam:jsusta:v:17:y:2025:i:11:p:5139-:d:1671218
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/11/5139/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2071-1050/17/11/5139/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lv, Chengchao & Shao, Changhua & Lee, Chien-Chiang, 2021. "Green technology innovation and financial development: Do environmental regulation and innovation output matter?," Energy Economics, Elsevier, vol. 98(C).
    2. Gregor Semieniuk & Emanuele Campiglio & Jean‐Francois Mercure & Ulrich Volz & Neil R. Edwards, 2021. "Low‐carbon transition risks for finance," Wiley Interdisciplinary Reviews: Climate Change, John Wiley & Sons, vol. 12(1), January.
    3. Minna Halme & Jyrki Niskanen, 2001. "Does corporate environmental protection increase or decrease shareholder value? The case of environmental investments," Business Strategy and the Environment, Wiley Blackwell, vol. 10(4), pages 200-214, July.
    4. George Serafeim, 2020. "Public Sentiment and the Price of Corporate Sustainability," Financial Analysts Journal, Taylor & Francis Journals, vol. 76(2), pages 26-46, April.
    5. Marshall Burke & Solomon M. Hsiang & Edward Miguel, 2015. "Global non-linear effect of temperature on economic production," Nature, Nature, vol. 527(7577), pages 235-239, November.
    6. Dingzu Zhang & Luqi Liu, 2022. "Does ESG Performance Enhance Financial Flexibility? Evidence from China," Sustainability, MDPI, vol. 14(18), pages 1-22, September.
    7. Mugerman, Yevgeny & Steinberg, Nadav & Wiener, Zvi, 2022. "The exclamation mark of Cain: Risk salience and mutual fund flows," Journal of Banking & Finance, Elsevier, vol. 134(C).
    8. E. Somanathan & Rohini Somanathan & Anant Sudarshan & Meenu Tewari, 2021. "The Impact of Temperature on Productivity and Labor Supply: Evidence from Indian Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 129(6), pages 1797-1827.
    9. Liu, Zongming & Feng, Jingzhi, 2025. "Climate shocks and corporate default risk: Evidence from China," Energy, Elsevier, vol. 323(C).
    10. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    11. Li, Ang & Ma, Yuze & Li, Bin, 2025. "How do climate risks affect corporate energy intensity? Evidence from China," Energy, Elsevier, vol. 323(C).
    12. Bing He & Cancan Ma, 2024. "Can the Inclusiveness of Foreign Capital Improve Corporate Environmental, Social, and Governance (ESG) Performance? Evidence from China," Sustainability, MDPI, vol. 16(22), pages 1-16, November.
    13. Jeremy Galbreath, 2010. "Corporate governance practices that address climate change: an exploratory study," Business Strategy and the Environment, Wiley Blackwell, vol. 19(5), pages 335-350, July.
    14. Bai, Dongbei & Du, Lizhao & Xu, Yang & Abbas, Shujaat, 2023. "Climate policy uncertainty and corporate green innovation: Evidence from Chinese A-share listed industrial corporations," Energy Economics, Elsevier, vol. 127(PB).
    15. Mingjun Deng & Xusheng Fang & Ziyan Tian & Wenbing Luo, 2022. "The Impact of Environmental Uncertainty on Corporate Innovation: Evidence from Chinese Listed Companies," Sustainability, MDPI, vol. 14(9), pages 1-19, April.
    16. Xiaoyue Qiu & Yaming Zhuang & Xiaqun Liu, 2025. "Climate Risk and Corporate Debt Financing: Evidence from Chinese A-Share-Listed Firms," Sustainability, MDPI, vol. 17(9), pages 1-27, April.
    17. Xu Zhang & Xing Bao, 2025. "Sustainable Transformation: The Impact of Climate Risk Perception on Corporate Operational Resilience in China," Sustainability, MDPI, vol. 17(8), pages 1-19, April.
    18. Schaeffer, Roberto & Szklo, Alexandre Salem & Pereira de Lucena, André Frossard & Moreira Cesar Borba, Bruno Soares & Pupo Nogueira, Larissa Pinheiro & Fleming, Fernanda Pereira & Troccoli, Alberto & , 2012. "Energy sector vulnerability to climate change: A review," Energy, Elsevier, vol. 38(1), pages 1-12.
    19. Djula Borozan & Burak Pirgaip, 2024. "Climate policy uncertainty and firm‐level carbon dioxide emissions: Assessing the impact in the U.S. market," Business Strategy and the Environment, Wiley Blackwell, vol. 33(6), pages 5920-5938, September.
    20. Li, Wei-An & Du, Hanyu & He, Feng, 2025. "Mandatory corporate ESG disclosure and default risk – Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 89(C).
    21. 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).
    22. Xuefeng Li & Le Luo & Qingliang Tang, 2024. "Climate risk and opportunity exposure and firm value: An international investigation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(6), pages 5540-5562, September.
    23. Henry He Huang & Joseph Kerstein & Chong Wang & Feng (Harry) Wu, 2022. "Firm climate risk, risk management, and bank loan financing," Strategic Management Journal, Wiley Blackwell, vol. 43(13), pages 2849-2880, December.
    24. Arian, Adam & Naeem, Muhammad A., 2025. "Climate risk and corporate investment behavior in emerging economies," Emerging Markets Review, Elsevier, vol. 65(C).
    25. Addoum, Jawad M. & Ng, David T. & Ortiz-Bobea, Ariel, 2023. "Temperature shocks and industry earnings news," Journal of Financial Economics, Elsevier, vol. 150(1), pages 1-45.
    26. Burke, Marshall & Hsiang, Solomon M & Miguel, Edward, 2015. "Global non-linear effect of temperature on economic production," Department of Economics, Working Paper Series qt3g72r0zv, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    27. Hong, Harrison & Li, Frank Weikai & Xu, Jiangmin, 2019. "Climate risks and market efficiency," Journal of Econometrics, Elsevier, vol. 208(1), pages 265-281.
    28. Sayantan Khanra & Puneet Kaur & Rojers P Joseph & Ashish Malik & Amandeep Dhir, 2022. "A resource‐based view of green innovation as a strategic firm resource: Present status and future directions," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1395-1413, May.
    29. Jianxiang Liu & Wen Yu Yi, 2025. "The impact of business environment on corporate default risk: evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 32(5), pages 644-651, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. He, Feng & Ren, Xingzi & Wang, Yueren & Lei, Xingfan, 2025. "Climate risk and corporate bond credit spreads," Journal of International Money and Finance, Elsevier, vol. 154(C).
    2. Zhang, Jing & Li, Meng, 2024. "Compromise or struggle: Extreme temperatures and environmental corporate social responsibility in China," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1872-1894.
    3. Chen, Fanglin & Zhang, Jie & Chen, Zhongfei, 2024. "Assessment of the effects of extreme temperature on economic activity," Ecological Economics, Elsevier, vol. 222(C).
    4. Yuan, Zhengrong & Ding, Hai & Yu, Qiuzuo, 2024. "High temperature, bargaining power and within-firm wage inequality: Evidence from China," Economic Modelling, Elsevier, vol. 135(C).
    5. Aguilar-Gomez, Sandra & Gutierrez, Emilio & Heres, David & Jaume, David & Tobal, Martin, 2024. "Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico," Journal of Development Economics, Elsevier, vol. 168(C).
    6. Arnone, Massimo & Leogrande, Angelo, 2024. "The Green Trilemma: Energy Efficiency, Banking Stability and Climate Risk in the ESG Context at World Level," MPRA Paper 121169, University Library of Munich, Germany.
    7. Fan, Wenna & Wang, Feng & Zhang, Hao & Yan, Bin & Ling, Rui & Jiang, Hongfei, 2024. "Is climate change fueling commercial banks’ non-performing loan ratio? Empirical evidence from 31 provinces in China," International Review of Economics & Finance, Elsevier, vol. 96(PA).
    8. Li, Wanli & Luo, Dan & Cheng, Teng-Yuan, 2025. "Strategy choices in strategic risk-taking: Does climate risk matter?," International Review of Financial Analysis, Elsevier, vol. 97(C).
    9. Leonardo Bortolan & Atreya Dey & Luca Taschini, 2024. "Volatile Temperatures and Their Effects on Equity Returns and Firm Performance," CESifo Working Paper Series 11438, CESifo.
    10. Vollmar, Steffen & Wening, Fabian, 2024. "Does heat stress deteriorate the quality of banks’ loan portfolios? Evidence from U.S. community banks," Finance Research Letters, Elsevier, vol. 69(PB).
    11. Xiaojun Yu & Russell Smyth & Yao Yao & Quanda Zhang, 2024. "Water stress and industrial firm productivity: Evidence from China," Monash Economics Working Papers 2024-20, Monash University, Department of Economics.
    12. Nora M C Pankratz & Christoph M Schiller, 2024. "Climate Change and Adaptation in Global Supply-Chain Networks," The Review of Financial Studies, Society for Financial Studies, vol. 37(6), pages 1729-1777.
    13. Venky Nagar & Jordan Schoenfeld, 2024. "Measuring weather exposure with annual reports," Review of Accounting Studies, Springer, vol. 29(1), pages 1-32, March.
    14. repec:cte:wsrepe:37973 is not listed on IDEAS
    15. Chen, Zhenzhu & Li, Li & Tang, Yao, 2024. "Weather, credit, and economic fluctuations: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 406-422.
    16. Intraligi, Valerio & Biagetti, Marco & Principi, Andrea, 2025. "Are older workers more likely to exit employment following unexpected heat waves?," EconStor Preprints 318649, ZBW - Leibniz Information Centre for Economics.
    17. Griffin, Paul A. & Lont, David H. & Lubberink, Martien J.P., 2025. "The effects of extreme high temperature spells on financial performance," The British Accounting Review, Elsevier, vol. 57(2).
    18. Goodell, John W. & Palma, Alessia & Paltrinieri, Andrea & Piserà, Stefano, 2025. "Firm-level climate change risk and corporate debt maturity," Journal of International Money and Finance, Elsevier, vol. 152(C).
    19. Lehr, Jakob & Rehdanz, Katrin, 2024. "The effect of temperature on energy related CO2 emissions and economic performance in German industry," Energy Economics, Elsevier, vol. 138(C).
    20. Xu, Weidong & Gao, Xin & Xu, Hao & Li, Donghui, 2022. "Does global climate risk encourage companies to take more risks?," Research in International Business and Finance, Elsevier, vol. 61(C).
    21. Jefferson Muñoz & Alex Perez & Jaime Carabali, 2025. "Choques climáticos, productividad y desempeño de las firmas de la industria manufacturera en Colombia," Borradores de Economia 1298, Banco de la Republica de Colombia.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:11:p:5139-:d:1671218. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.