Climate Risks, Supply Chain Spillovers, and ESG Performance: Evidence from China

Abstract This study utilizes supplier and customer information disclosed by China A-share listed companies from 2009 to 2023 to identify inter-firm relationships across the supply chain. Utilizing machine learning techniques for textual analysis of annual reports, we construct firm-level climate risk metrics. Our analysis disclosures a positive relationship between climate risk exposure in downstream enterprises and the ESG performance of midstream manufacturers. In contrast, the impact of upstream climate risk on midstream ESG performance is relatively limited, revealing an asymmetric pattern in supply chain spillovers of climate risk. Mechanism analysis demonstrates that while downstream firms exert a significant negative moderating effect on midstream ESG performance through trade credit financing, this is outweighed by the dominant positive moderating effects arising from environmental awareness and green technology spillovers. Consequently, downstream climate risk exhibits a net positive effect on the ESG performance of midstream manufacturers. This research provides novel empirical evidence and a fresh perspective on the factors influencing corporate ESG performance.