From Risk to Sustainable Opportunity: Does Climate Risk Perception Lead Firm ESG Performance?

Abstract

Emerging climate risk perception (CRP) has drawn significant attention to its critical role in driving firms' ESG performance. We construct CRP development at the firm level employing the text analysis method. We explore the causal relationship between CRP and ESG performance using a data set covering listed firms from 2011 to 2022 in China. Our results demonstrate that CRP promotes firm ESG performance, and it is more evident in non-high-tech, non-heavy polluting, and labor-intensive firms. In addition, promoting sustainable green innovation, environmental protection investment, and alleviating information asymmetry are three important channels through which CRP affects ESG performance. Further analysis indicates that CRP strengthens firms’ green value by improving total green factor productivity. Our findings offer actionable insights for firms to achieve green transformation in practice.