Unveiling climate risk’s role in ESG and firm value dynamics: an emerging market perspective

Purpose This study aims to investigate the impact of the environmental, social and governance (ESG) components on firm value (FV) in Nifty 50 firms. Furthermore, it explores how the Climate change risk, a key aspect of SDG 13 (Climate Action), moderates the relationship between ESG disclosures (ESGD) components and FV. Moreover, it examines the heterogeneity of results among high-low polluting industries; it aligns with SDG 12 (Responsible Consumption and Production) and how firms with different pollution levels integrate sustainable production practices with economic motives. Design/methodology/approach The pooled OLS model with industry effect is applied to panel data of 50 Nifty Indian firms from 2017 to 2023. The climate vulnerability index is used as a moderating variable to investigate the moderating impact of climate change risk on the relationship between ESGD components and FV. Industries are classified into high and low-polluting industries as per norms of the Central Pollution Control Board of India. Furthermore, 2SLS, two step system GMM estimation and alternative measure robustness test are conducted. Findings The study explored the negative impact of Environment (ENV) and Governance (GOV) performance on the value of nifty 50 firms; climate vulnerability magnifies the negative impact of ENV and GOV performance. Higher ENV performance negatively impacts FV in both high and low-polluting industries, but the negative impact is stronger in low-polluting industries. Enhancing GOV and Social (SOC) performance negatively impacts FV only in low-polluting industries. SOC and GOV performance has an insignificant impact in high polluting industries. Moreover, the Climate vulnerability index magnifies the impact of ESGD components on the FV of Nifty 50 firms, high- and low-polluting samples. Research limitations/implications The study is limited to the Indian context and Nifty 50 firms. Furthermore, it can be extended to other emerging countries to have more comprehensive findings. Originality/value The CVI measures a country’s exposure to climate change’s negative impacts. This index is used in the Indian context to assess the moderating impact of climate change on the relationship between ESGD components and FV in high and low-polluting industries.