The impact of climate policy uncertainty on ESG performance, carbon emission intensity and firm performance: evidence from Fortune 1000 firms.

ESG performance has become vital for business in recent years. Consumers, stakeholders and investors alike seek companies that can show that they are environmentally and socially responsible, especially in periods of uncertainty. Using a new measure of uncertainty, the Climate Policy Uncertainty Index developed by Gavriilidis (Measuring climate policy uncertainty, 2021), this study investigates environmental, social and governance (ESG) performance, firm performance and carbon dioxide emission performance in the context of major developments related to climate policy and events. Further, the study provides insights into how ESG performance moderates the impact of climate policy uncertainty on firm performance and carbon dioxide emission performance. Finally, this paper examines how investor sentiment influences ESG performance during periods of high uncertainty. Based on a large sample of 2640 firms (6462 firm-year observations) from the US Fortune 1000 list covering the years 2008–2018, the empirical results demonstrate that climate policy uncertainty positively affects ESG performance and negatively affects firm performance and carbon dioxide emission performance. In addition, we find that firms enhance their ESG performance when investors are pessimistic, especially during periods of high uncertainty. Finally, we show that ESG performance does not moderate the effects of climate policy uncertainty on firm performance and carbon dioxide emission performance. These findings may help managers and policymakers to boost ESG performance to reap the benefits of ESG activities during periods of uncertainty related to changes in climate policy. Further, the results identify a promising channel via investor power that the government and ESG reporting advocates can utilise to encourage firms to act responsibly during periods of uncertainty. [ABSTRACT FROM AUTHOR]