When Chinese firm's ESG governance encounters US climate policy uncertainty: Challenges or opportunities?

As the world's second-largest emitter of greenhouse gases, the U.S. climate policy uncertainty (CPU) has been widely scrutinized, but its impact on Chinese companies' Environmental, Social, and Governance (ESG) performance has yet to be explored. This study examines the impact of the U.S. CPU on ESG performance using Chinese-listed companies from 2011 to 2020. We find that the U.S. CPU is significantly positively associated with the ESG performance of Chinese companies, and it is still valid after a series of robustness tests and endogeneity addressing. In particular, the U.S. CPU has a greater role in promoting ESG performance for China's companies with the Big 4 international accounting firms for auditing, companies in the growth and maturity stage and companies from non-heavy polluting industries, companies with political connections, and companies with higher ESG performance. Ultimately, the mechanism test shows that the U.S. CPU positively affects Chinese companies' ESG performance by promoting their internationalization and reducing information asymmetry, encouraging green investors' entry and corporate green innovation. This study demonstrates the cross-border contagion effect of CPU, which has important guiding significance for policymakers and investors.