Climate Vulnerability and Sovereign ESG Performance: The Conditioning Roles of Adaptation Innovation, Institutional Quality and Robot Adoption

ABSTRACT The intensification of physical climate risk presents a critical question for global sustainability governance: does exposure to climate hazards strengthen or weaken a country's environmental, social and governance (ESG) performance? This study investigates the relationship between climate vulnerability and country‐level ESG performance across 63 countries over the period 2010–2024. A novel entropy‐weighted composite ESG index is constructed, integrating 60 indicators across the three ESG dimensions, and climate vulnerability is measured through the ND‐GAIN vulnerability index within a two‐way fixed effects design. The results demonstrate that climate vulnerability significantly reduces ESG performance. Moderation analysis reveals that this adverse effect is conditional, operating through two capacity channels: climate adaptation innovation and institutional quality, each of which progressively weakens the relationship as capacity rises. Crucially, threshold regression uncovers non‐linear dynamics: using industrial robot adoption as the threshold variable, the adverse effect deepens at intermediate automation intensity before weakening substantially once countries surpass a critical upper threshold. Spatial analysis further reveals a proximity pattern, whereby the adverse effect concentrates among countries distant from the lowest‐vulnerability economy in their region (Japan, Canada and Switzerland) and weakens with proximity to these anchors. These findings suggest that protecting ESG performance from climate stress requires integrated policy frameworks that synchronise adaptation innovation, institutional capacity building, automation investment and regional cooperation.