Fortune Favors the Green: Role of Green Investment in Mitigating Climate Risk and the Moderating Role of ESG Performance

Abstract

Addressing climate risk has become an urgent priority as firms face mounting pressures from regulators, investors, and society to transition toward sustainable practices. This study examines whether green investment mitigates firm-level climate risk and assesses how environmental, social, and governance factors influence this relationship. Utilizing panel data from 4375 non-financial firms across 74 countries from 2002 to 2023, we employ the OLS, GMM, and heterogeneity tests to ensure robust inference. Our findings indicate that green investment significantly reduces climate risk exposure, with ESG performance amplifying this effect.

Keywords: green investment, climate risk, ESG, sustainable development, R&D