In line with Sustainable Development Goals, firms are increasingly incorporating Environmental, Social, and Governance (ESG) considerations in their investment strategies. The effect of firms' climate change risk (FCCR) on firms’ Value (FV), and how such investment engagements moderate this effect, is a prominent subject of debate among scholars, investors, and policymakers. To examine these dynamics, we analyze a dataset of 1771 United States (US)-listed firms from 2006 to 2021 to quantify the effect of FCCR on FV. We use the generalized method of moments model to achieve our objectives. The major findings are summarized as follows: First, FCCR has a negative and significant effect on FV. Second, ESG investments positively and significantly influence FV. Third, ESG investments significantly moderate the FCCR-FV relationship. We confirm our estimations are robust under different estimations strategies. Finally, this article provides a fresh perspective on risk management with significant policy implications for investors, managers, and regulators in the US. We suggest that ESG investing is an important strategic catalyst for US firms.

Purpose: This study investigates the effect of climate change sentiments (CCS) on firm value (FV) and how environmental, social and governance (ESG) practices moderate this effect. Design/methodology/approach: High-dimensional fixed effects and a two-stage generalized method of moments are applied to data on 6,059 publicly traded firms from 2006 to 2022. Findings: There is a significant negative effect of CCS on FV, specifically on growth option value (GOV) and Tobin’s Q (TQR), which intensifies during crisis periods. ESG practices, however, moderate this relationship positively, especially for firms with higher GOV and TQR, enhancing their resilience to climate risks. External shocks accelerate sustainability-driven strategies in firms with higher CCS exposure. In developed countries, firms show a stronger sensitivity to CCS due to stronger institutional environments and investor pressure, while firms in developing countries exhibit a weaker sensitivity. Practical implications: The results underline the necessity for corporate managers to proactively manage climate-related risks and integrate robust ESG strategies to sustain and enhance FV. Analysts, risk managers and investors should consider a company’s exposure to CCS and its ESG performance when assessing risk profiles. Policymakers are encouraged to implement stronger regulatory frameworks and incentives promoting corporate transparency and accountability in managing climate-related risks. Originality/value: This study unfolds novel evidence, linking psychological research and the traditional basic modified model through an examination of the effect of CCS on FV using an international sample. It highlights the critical role of ESG practices in mitigating the adverse effects of CCS on FV, providing valuable insights for businesses, investors and policymakers.