Assessing the Moderating Effect of ESG Investment on Climate Variability Risk and Firm Value Nexus

Authors

  • Mohammed Ahmed Yousef Al-qadhi School of Economics and Management, Xidian University, Xi’an, Shaanxi Province, P.R. China Author
  • Shen Zunhuan School of Economics and Management, Xidian University, Xi’an, Shaanxi Province, P.R. China Author
  • Umar Farooq School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China Corresponding Author
  • Mosab I. Tabash College of Business, Al Ain University, Al Ain, United Arab Emirates Author
  • Abdelhafid Belarbi College of Business, Al Ain University, Al Ain, United Arab Emirates Author
  • Zokir Mamadiyarov Department of Finance and Tourism, Termez University of Economics and Service, Termez, Uzbekistan , Department of Finance, Alfraganus University, Tashkent, Uzbekistan , Department of Economics, Mamun University, Khiva, Uzbekistan Author

DOI:

https://doi.org/10.47654/v30y2026i1p40-71

Keywords:

Climate Risk, ESG Investment, Firm Value, GMM, FGLS

Abstract

Purpose: This study investigates how climate variability risk (CVR) influences the firm value (EW) and examines the moderating role of environmental, social, and governance (ESG) investment in mitigating the impact. The objective is to examine whether firms with stronger ESG engagement demonstrate greater resilience to climate-induced uncertainties.

Design: A panel dataset of 1,720 U.S.-listed firms covering the period from 2005 to 2020 is utilized. Both Feasible Generalized Least Squares (FGLS) and Generalized Method of Moments (GMM) techniques are employed to examine heteroscedasticity, endogeneity, and dynamic relationships between the variables.

Findings: Our empirical analysis reveals a significant and negative association between CVR and EW, suggesting that heightened climate uncertainty reduces corporate valuation. In contrast, ESG investment exhibits a positive and significant relationship with EW, underscoring its contribution to sustainable value creation. Furthermore, ESG investment moderates the CVR–EW linkage by diminishing the adverse impact of climate variability risk on firm value.

Research Limitations: The analysis is confined to the U.S.-listed firms, which may limit the applicability of the findings to contexts characterized by different environmental and regulatory structures. Future studies could expand this scope through cross-country comparisons or sector-specific analyses.

Practical Implications: The results underscore the importance for corporate managers, investors, and policymakers to reinforce ESG-driven strategies, as such investments can buffer firms against climate-related risks and support long-term value enhancement.

Originality/Value: This study uniquely incorporates ESG investment as a moderating mechanism within the CVR–EW nexus, offering novel insights into how sustainability-oriented strategies transform climate risk into value-enhancing opportunities in corporate finance.

The findings contribute to the Decision Sciences literature by demonstrating how ESG-based decision frameworks can improve corporate resilience and strategic responses to climate uncertainty, thereby supporting more informed, risk-aware corporate policies.

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Published

2026-01-27

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Vol. 30 No. 1 (2026): Advances in Decision Sciences

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How to Cite

Al-qadhi, M. A. Y., Zunhuan, S., Farooq, U., Tabash, M. I., Belarbi, A., & Mamadiyarov, Z. (2026). Assessing the Moderating Effect of ESG Investment on Climate Variability Risk and Firm Value Nexus. Advances in Decision Sciences, 30(1), 40-71. https://doi.org/10.47654/v30y2026i1p40-71