Fortune favors the green: Role of green investment in mitigating climate risk and the moderating role of ESG performance

The global firms are feeling pressure to urgently address the climate concerns and transition towards sustainable green practices. There is an immediate concern from the regulators, investors, governments, and consumers about addressing this pressing issue. Against this backdrop, this study investigates the role of green investments in mitigating climate risk with the moderating role of ESG performance. The study employs panel data from 4375 non-financial firms across 74 countries from 2002 to 2023 to ensure robust inference by using the OLS, GMM, and heterogeneity tests. The findings indicate that green investment significantly reduces climate risk exposure, with ESG performance amplifying this effect. Simultaneously, a high ESG score signals long-term risk management and corporate responsibility, strengthening investor confidence and stakeholder trust. This synergy enhances a firm's resilience to regulatory and environmental shocks and improves its market valuation and credibility. These insights offer valuable guidance to institutional investors, regulators, and policymakers aiming to align capital allocation with global climate commitments and the Sustainable Development Goals (SDGs). Encouraging green investment and ESG integration can serve as a dual-purpose strategy, mitigating climate risk while fostering sustainable, inclusive economic growth. This research contributes to the discourse on sustainable finance by highlighting the role of responsible investment in promoting resilience against climate risk.