Climate finance and corporate ESG performance—evidence from China’s listed companies

Climate finance, a crucial tool for advancing global sustainable development, is gaining attention because of its potential influence on Environmental, Social, and Governance (ESG) outcomes. However, the research in this area is limited. This study empirically examines the impact of climate finance on corporate ESG performance using a sample of A-share listed companies from 2010 to 2023. The results indicate that climate finance significantly improves corporate ESG performance, which remains robust across multiple tests. This improvement is driven primarily by two mechanisms: Increased digital transformation and decreased agency costs. These positive effects are particularly evident in non-state-owned enterprises, large firms, companies operating in competitive and non-heavily polluting industries, and those located in the eastern region. Overall, this study highlights the positive influence of climate finance on corporate ESG performance and the mechanisms through which it operates, underscoring its role in strengthening corporate governance and advancing sustainable development. These findings provide valuable implications for corporate managers and policymakers.