The Impact of Climate Risk on Firm Performance: An Empirical Analysis based on the ESG Perspective of Manufacturing Firms

Abstract

This paper studies the ESG behavior and its influencing factors of manufacturing enterprises under the challenge of climate risk from the enterprise level. It is found that climate risk has a significant positive impact on ESG performance of enterprises, indicating that enterprises are more inclined to strengthen management and investment in environment, society and governance when responding to the challenge of climate change. Transformation risk is the main driving force, while physical risk has no significant impact. In addition, the analysis of regional differences shows that climate risk has a significant impact on the ESG performance of manufacturing enterprises in the central and eastern regions, but not on the western regions. Heavy polluting enterprises take more measures of technological transformation and upgrading in the face of climate risks, and their ESG performance is affected by climate risks 40% more than that of non-heavy polluting enterprises. The study also found that the higher the level of green innovation, the greater the impact of climate risk on the firm's ESG performance. Therefore, enterprises should attach importance to green innovation, improve environmental and social performance through technological innovation, strengthen climate risk management, and promote green innovation; Policy makers should take regional differences into account to formulate strategies, pay attention to the transformation of heavy polluters, promote cross-sectoral cooperation, and establish continuous monitoring and evaluation mechanisms to improve the performance of enterprises in ESG.