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<p>This study examines how climate risk affects sectoral corporate profits in the USA and whether Environmental, Social, and Governance (ESG) practices condition these effects. Using an ADL–MIDAS framework, we combine quarterly profitability data for eleven GICS sectors with daily indicators of physical climate risk—capturing extreme weather events and temperature anomalies—and transition risk associated with climate policy and market adjustments. The results reveal substantial sectoral heterogeneity. Utilities, Industrials, and Consumer Staples exhibit relatively resilient responses to moderate climate variability, whereas Energy and Financials remain more exposed to both physical disruptions and regulatory transitions. Mediation analysis indicates that ESG accounts for only a negligible share of the transmission of climate-related effects. However, incorporating ESG directly into the predictive framework significantly improves both in-sample fit and out-of-sample forecast performance. These findings suggest that ESG contributes primarily through its stabilizing and forward-looking informational role rather than as a dominant transmission channel. The results have important implications for managers seeking to enhance operational resilience, investors incorporating climate-related risks into portfolio decisions, and policymakers aiming to strengthen disclosure frameworks and support resilience-enhancing investments. By integrating high-frequency climate risk indicators with sector-level ESG measures, this study provides a tractable and replicable framework for evaluating corporate vulnerability and adaptive capacity in a climate-exposed economic environment.</p>

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Understanding ESG-mediated climate risk impacts on corporate profits: sectoral dynamics and predictive evidence from an ADL–MIDAS framework

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年7月3日

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  • Haoxin Zhao,
  • Kazeem O. Isah

摘要

This study examines how climate risk affects sectoral corporate profits in the USA and whether Environmental, Social, and Governance (ESG) practices condition these effects. Using an ADL–MIDAS framework, we combine quarterly profitability data for eleven GICS sectors with daily indicators of physical climate risk—capturing extreme weather events and temperature anomalies—and transition risk associated with climate policy and market adjustments. The results reveal substantial sectoral heterogeneity. Utilities, Industrials, and Consumer Staples exhibit relatively resilient responses to moderate climate variability, whereas Energy and Financials remain more exposed to both physical disruptions and regulatory transitions. Mediation analysis indicates that ESG accounts for only a negligible share of the transmission of climate-related effects. However, incorporating ESG directly into the predictive framework significantly improves both in-sample fit and out-of-sample forecast performance. These findings suggest that ESG contributes primarily through its stabilizing and forward-looking informational role rather than as a dominant transmission channel. The results have important implications for managers seeking to enhance operational resilience, investors incorporating climate-related risks into portfolio decisions, and policymakers aiming to strengthen disclosure frameworks and support resilience-enhancing investments. By integrating high-frequency climate risk indicators with sector-level ESG measures, this study provides a tractable and replicable framework for evaluating corporate vulnerability and adaptive capacity in a climate-exposed economic environment.