ESG Performance, Environmental Uncertainty, and Firm Risk

Xin Liu · Yuan Song

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Corporate Social Responsibility Reporting Sustainable Finance and Green Bonds Corporate Identity and Reputation

Abstract

ABSTRACT The growing concern over sustainable development has raised critical questions about the role of environmental, social, and governance (ESG) performance in shaping organizational outcomes. While prior research underscores the importance of ESG, there is limited understanding of its impact on firm risk, particularly under varying levels of environmental uncertainty. Using a data set of 9201 observations from Chinese listed companies on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2022, this study investigates how ESG performance influences firm risk and the moderating effect of environmental uncertainty. Our findings reveal that ESG performance reduces firm risk by lowering environmental penalties, easing financing constraints, enhancing corporate reputation, and improving access to government subsidies. Additionally, environmental uncertainty strengthens the negative impact of ESG performance on firm risk. These results highlight the critical role of ESG performance in mitigating corporate risk and offer practical implications for firms, investors, and policymakers seeking to align corporate strategies with sustainable economic development goals.

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References

2010New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index 2010Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting 2014The Impact of Corporate Sustainability on Organizational Processes and Performance 2000WHY COMPANIES GO GREEN: A MODEL OF ECOLOGICAL RESPONSIVENESS.2006Financial Constraints Risk 2008The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis 2021Firms and social responsibility: A review of ESG and CSR research in corporate finance 1985AN EMPIRICAL EXAMINATION OF THE RELATIONSHIP BETWEEN CORPORATE SOCIAL RESPONSIBILITY AND PROFITABILITY.

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