Climate change sentiment, ESG practices and firm value: international insights

Purpose This study investigates the effect of climate change sentiments (CCS) on firm value (FV) and how environmental, social and governance (ESG) practices moderate this effect. Design/methodology/approach High-dimensional fixed effects and a two-stage generalized method of moments are applied to data on 6,059 publicly traded firms from 2006 to 2022. Findings There is a significant negative effect of CCS on FV, specifically on growth option value (GOV) and Tobin’s Q (TQR), which intensifies during crisis periods. ESG practices, however, moderate this relationship positively, especially for firms with higher GOV and TQR, enhancing their resilience to climate risks. External shocks accelerate sustainability-driven strategies in firms with higher CCS exposure. In developed countries, firms show a stronger sensitivity to CCS due to stronger institutional environments and investor pressure, while firms in developing countries exhibit a weaker sensitivity. Practical implications The results underline the necessity for corporate managers to proactively manage climate-related risks and integrate robust ESG strategies to sustain and enhance FV. Analysts, risk managers and investors should consider a company’s exposure to CCS and its ESG performance when assessing risk profiles. Policymakers are encouraged to implement stronger regulatory frameworks and incentives promoting corporate transparency and accountability in managing climate-related risks. Originality/value This study unfolds novel evidence, linking psychological research and the traditional basic modified model through an examination of the effect of CCS on FV using an international sample. It highlights the critical role of ESG practices in mitigating the adverse effects of CCS on FV, providing valuable insights for businesses, investors and policymakers.

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Publication Details

Journal
China Finance Review International
Published
2024-12-06
DOI
https://doi.org/10.1108/cfri-07-2024-0381
Citations
41
Primary Topic
Corporate Social Responsibility Reporting
Type
article
Field-Weighted Citation Impact
22.74
Controls
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article

Climate change sentiment, ESG practices and firm value: international insights

Muhammad Asif Khan, Tanveer Bagh, Elie Bouri
41 citations
China Finance Review International
Corporate Social Responsibility Reporting
22.74
article

Climate change sentiment, ESG practices and firm value: international insights

Muhammad Asif Khan, Tanveer Bagh, Elie Bouri
article en
41 citations

Abstract

Purpose This study investigates the effect of climate change sentiments (CCS) on firm value (FV) and how environmental, social and governance (ESG) practices moderate this effect. Design/methodology/approach High-dimensional fixed effects and a two-stage generalized method of moments are applied to data on 6,059 publicly traded firms from 2006 to 2022. Findings There is a significant negative effect of CCS on FV, specifically on growth option value (GOV) and Tobin’s Q (TQR), which intensifies during crisis periods. ESG practices, however, moderate this relationship positively, especially for firms with higher GOV and TQR, enhancing their resilience to climate risks. External shocks accelerate sustainability-driven strategies in firms with higher CCS exposure. In developed countries, firms show a stronger sensitivity to CCS due to stronger institutional environments and investor pressure, while firms in developing countries exhibit a weaker sensitivity. Practical implications The results underline the necessity for corporate managers to proactively manage climate-related risks and integrate robust ESG strategies to sustain and enhance FV. Analysts, risk managers and investors should consider a company’s exposure to CCS and its ESG performance when assessing risk profiles. Policymakers are encouraged to implement stronger regulatory frameworks and incentives promoting corporate transparency and accountability in managing climate-related risks. Originality/value This study unfolds novel evidence, linking psychological research and the traditional basic modified model through an examination of the effect of CCS on FV using an international sample. It highlights the critical role of ESG practices in mitigating the adverse effects of CCS on FV, providing valuable insights for businesses, investors and policymakers.

China Finance Review InternationalVol. 15(3)
Central University of Finance and Economics (CN), University of Azad Jammu and Kashmir (PK), Lebanese American University (LB), College of Business Administration (LV)
Openalex Percentile: Top 0%
Corporate Social Responsibility Reporting
22.74
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