Does Governance Quality Matter? A Contingency Perspective on Climate‐Related Financial Disclosure and Firm Performance in G7 Countries

ABSTRACT This study examines the relationship between climate‐related financial disclosure (CRFD) and firm performance, with a particular focus on the moderating role of external governance quality in G7 countries. While prior studies report mixed evidence on the performance implications of climate disclosure, we argue that these differences can be explained by variation in national governance environments. Using a panel of 1750 firm‐year observations from G7 countries over the period 2019–2023, we employ fixed effects and system GMM estimators to assess both direct and conditional effects. The results show that CRFD is positively associated with market‐based performance, measured by Tobin's Q, but not with accounting‐based performance. Importantly, this relationship is significantly strengthened in countries characterised by strong enforcement‐oriented governance, including government effectiveness, regulatory quality, and rule of law. In contrast, democratic accountability and political stability do not condition the CRFD–performance relationship. These findings support a contingency perspective, suggesting that the financial relevance of climate disclosure depends on the surrounding institutional context. The study contributes to the literature by clarifying when climate‐related disclosure translates into firm value and offers insights for firms, investors, and policymakers in advanced economies.