Climate change exposes firms to increasing climate-related risks; however, researchers have largely overlooked how these risks transmit through production networks to affect firm sustainability. To address this gap, we integrated industry climate risk, production networks, and firm ESG performance into a unified analytical framework. Using data from A-share listed companies in Shanghai and Shenzhen between 2009 and 2022, we empirically examined the direct effects and network spillover effects of industry climate risk on firm ESG performance. The findings revealed that industry climate risk not only exerts a direct negative effect on firm ESG performance but also generates significant spillover effects through production networks, with upstream spillovers originating from the supply side being particularly pronounced. This impact exhibits heterogeneity: It is more significant for large-scale firms, non-state-owned enterprises, and during periods of unbalanced production network structure. Moreover, high-carbon industries are primarily affected by network spillover effects, while low-carbon industries are more subject to direct effects. Mechanism analysis indicated that industry climate risk undermines firm ESG performance mainly by inhibiting green innovation, tightening financing constraints, and elevating systemic asset risk, with production networks further amplifying these transmission mechanisms. Further analysis showed that the environmental dimension is more sensitive to direct effects, whereas the social dimension responds more strongly to network effects. Notably, while upstream firms experience negative network spillovers, their direct effects are significantly positive. In contrast, downstream firms face dual suppression from direct and network effects. Moreover, higher investment efficiency can effectively mitigate the negative impact of climate risk. This study contributes to the literature by uncovering the production network transmission mechanism of climate risk and provides novel evidence on the heterogeneous effects across supply chain positions. The findings inform policymakers on designing networked and differentiated governance strategies to enhance firm ESG resilience in the face of climate change.
Citation: Junfan Ren, Taofeng Chen, Zhihao Hu. Industry climate risk, production networks and firm ESG performance[J]. Green Finance, 2026, 8(3): 414-444. doi: 10.3934/GF.2026015
Climate change exposes firms to increasing climate-related risks; however, researchers have largely overlooked how these risks transmit through production networks to affect firm sustainability. To address this gap, we integrated industry climate risk, production networks, and firm ESG performance into a unified analytical framework. Using data from A-share listed companies in Shanghai and Shenzhen between 2009 and 2022, we empirically examined the direct effects and network spillover effects of industry climate risk on firm ESG performance. The findings revealed that industry climate risk not only exerts a direct negative effect on firm ESG performance but also generates significant spillover effects through production networks, with upstream spillovers originating from the supply side being particularly pronounced. This impact exhibits heterogeneity: It is more significant for large-scale firms, non-state-owned enterprises, and during periods of unbalanced production network structure. Moreover, high-carbon industries are primarily affected by network spillover effects, while low-carbon industries are more subject to direct effects. Mechanism analysis indicated that industry climate risk undermines firm ESG performance mainly by inhibiting green innovation, tightening financing constraints, and elevating systemic asset risk, with production networks further amplifying these transmission mechanisms. Further analysis showed that the environmental dimension is more sensitive to direct effects, whereas the social dimension responds more strongly to network effects. Notably, while upstream firms experience negative network spillovers, their direct effects are significantly positive. In contrast, downstream firms face dual suppression from direct and network effects. Moreover, higher investment efficiency can effectively mitigate the negative impact of climate risk. This study contributes to the literature by uncovering the production network transmission mechanism of climate risk and provides novel evidence on the heterogeneous effects across supply chain positions. The findings inform policymakers on designing networked and differentiated governance strategies to enhance firm ESG resilience in the face of climate change.
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Junfan Ren, Taofeng Chen, Zhihao Hu. Industry climate risk, production networks and firm ESG performance[J]. Green Finance, 2026, 8(3): 414-444. doi: 10.3934/GF.2026015
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