The impact of climate risk on esg performance: the role of green bonds issuance. Evidence from Asia.

Abstract

In the context of increasing climate risks, as nature begins to respond to human actions adversely, the importance of enhancing environmental and social initiatives has gained significant attention. Consequently, ESG performance has emerged as a critical metric for sustainable businesses, capable of contributing to a sustainable future. With remarkable growth potential and vibrant economic activities, Asia is increasingly asserting its position in the global market, both economically and in terms of contributions to sustainable development efforts. In light of the escalating challenges posed by climate change, the authors question whether Asian companies are genuinely striving to adapt and deliver greater value to the community. To address this question, an empirical study was conducted involving a dataset of 1,655 Asian companies to investigate the influence of Climate risk on Asian firms’ ESG performance and to examine whether Green bonds facilitate this relationship. The study employed a two- way fixed effects model (Two-way FEM) along with various company-level and macroeconomic control variables, as well as robustness tests. The authors discovered that Climate risk has a positive impact on ESG performance among Asian companies, with state-owned enterprises (SOEs) demonstrating better adaptability in enhancing ESG performance compared to non-state-owned enterprises (n-SOEs) in the face of increasing climate risks. Additionally, the interaction between national Green bond issuance and the correlation between Climate risk and ESG performance was found to be non-significant. However, the issuance of national Green bonds negatively impacts the Governance pillar of firms, hindering the positive influence of climate risk. Besides, the authors also conducted heterogeneity analysis and indicated that the firms with low leverage are more resilient in improving ESG activities. These findings provide valuable insights for investors as well as managers aiming to effectively implement ESG strategies, as well as for governments and policymakers in Asia to develop policies that strengthen ESG initiatives as a strategic response to uncertainty.