Does firm-level exposure to climate change influence inward foreign direct investment? Revealing the moderating role of ESG performance

The impact of climate change on foreign direct investment (FDI) at the corporate level is insufficiently explored, despite extensive discussions on environmental protection. This research utilizes novel panel data (2009–2022) on Chinese A-share listed firms, using a two-way fixed-effect estimator to probe whether and how a firm's exposure to climate change influences the inflow of FDI, while considering the moderating role of environmental, social, and governance (ESG). The results show: (i) firm-level exposure to climate change harms inward FDI inflow; (ii) host country firms can mitigate the negative effect of exposure to climate change on inward FDI inflow by strengthening their ESG performance; (iii) exposure to climate change primarily impacts FDI inflow through environmental taxes and green investments; (iv) the detrimental effect of climate change risk on incoming FDI is more pronounced in the central and eastern region of China, and among non-state-owned firms. These findings provide insightful theoretical and practical implications for addressing SDG 13 (Climate Action) challenges and for attracting multinational investments in developing countries like China.