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This paper explores the impact of climate risk on corporate social responsibility engagement and examines whether CSR moderates the relationship between climate risk and financial performance among European firms. The study is based on a panel of 3304 observations relating to companies in the STOXX Europe 600. We use two-stage least squares estimation with instrumental variables (2SLS-IV) to account for endogeneity issues. The results show that the companies most exposed to climate risk increase their CSR commitments, a relationship that remains particularly robust for environmentally sensitive firms. More importantly, the empirical results show a significant interaction between climate risk and CSR; while climate risk negatively affects financial performance, CSR engagement serves as a critical moderating mechanism that reduces this adverse effect. The strength of this moderating effect significantly increases following the Paris Agreement.
Zaiane et al. (Tue,) studied this question.