Impacts on the ESG and financial performances of companies in the manufacturing industry based on the climate change related risks

Abstract

In the face of global systemic risks brought about by climate change, government organizations, civil societies, and enterprises globally have begun standardizing and implementing relevant contingency measures to mitigate or adapt to climate change. For example, Take SDG 13 climate action or implement various strategies for low-carbon transformation. In addition to responding to climate change commitments, these major changes have also boosted the rating scores of their ESG performance indicators, which inevitably have a certain degree of impact on their financial performance. Using the ESG performance indicators and financial data of 100 manufacturing firms worldwide from 2005 to 2020, this study constructs a multilevel quadratic growth model to analyze and investigate the effects of different types of ownership structure as well as disclosure of climate change-related risks and opportunities (CCR risks) on ESG and financial performance indicators among manufacturing industry firms. The findings of this study showed that different ownership structures, the degree of disclosure of climate change-related risks and opportunities (CCR risks), and the number of environmental performance indicators had no multiplicative effect on the financial performance of manufacturing companies. Instead, there was a positive, but negatively moderating, effect on financial performance. When the investigated enterprises attached higher importance to climate change issues and thus strengthened investments in, and implementation of, corresponding environmental performance indicators, the positive impact of environmental performance on financial performance gradually diminished to the point of negative impact, thereby affecting companies' operating profits. This was especially the case for private enterprises. However, disclosure of climate change-related risks and opportunities has a significant positive effect on financial performance among such firms. In addition, private firms and social performance indicators had a negative, but positively moderating, effect on financial performance. This meant that, upon investigation, the private enterprises made more effort to invest in and implement social performance indicators, and the impact on financial performance gradually increased and eventually shifted from negative to positive. Environmental performance indicators and financial performance were generally found to exhibit a distinctly positive effect.In summary, the results of this study can be used as a reference for firm managers to enhance their decision-making related to actions, strategies, and planning in response to climate change-related risks and opportunities under the framework of ESG performance indicators.