Climate Policy Uncertainty and ESG performance: The moderating effect of female board presence and leadership

Abstract

In this study, we examine whether and to what extent, U.S. firms adjust their ESG scores with respect to climate policy uncertainty. Our baseline findings indicate that firms significantly increase their ESG scores in times of high uncertainty regarding the climate. Furthermore, this increase is evident in all three ESG components, namely, environmental, social, and governance. However, this effect is more pronounced in soft industries and in firms with excess free cash flow. Finally, we document that female leadership mediates the positive relationship between climate policy uncertainty and ESG scores. We attribute this finding to the fact that maintaining substantially high scores is costly for corporations and it is associated with lower financial performance.

Keywords: Climate policy uncertainty, ESG, female leadership

JEL Classification: K32, L25, M14