Global reach, local impact: How China's outward foreign direct investment shapes corporate carbon risk management?

Abstract

Outward Foreign Direct Investment (OFDI) has emerged as a pivotal driver of globalization, enabling firms to broaden their reach across borders and tap into diverse resources. We present evidence supporting the role of OFDI in mitigating corporate carbon risk. However, the extent of the underlying mitigation effect varies depending on factors such as corporate nature, ESG ratings, and financial constraints. We also identify several intermediaries through which OFDI exerts its mitigating influence, such as corporate reputation, downside risk exposure, debt financing costs, and the firm's ability to innovate in green technologies. Further exploration substantiates the synergistic effects between OFDI and the emissions trading scheme, which together help further reduce corporate carbon risk. These findings offer valuable insights into how enhancing OFDI can mitigate carbon risk, thus supporting China's transition toward a low-carbon economy.