Corporate ESG performance and systemic risk: a network perspective

We investigate whether corporates’ environmental, social, and governance (ESG) performance affects their systemic risk. Based on 284 publicly-listed Chinese firms over the period 2011–2020, we construct a tail risk spillover network for measuring their connectedness and systemic risk and use a panel regression model to examine the influence of corporate ESG performance on systemic risk. Network connectedness is an essential channel for risk contagion, and the energy, industry, and finance sectors occupy a significant position in the system. The ESG performance has a significant negative impact on systemic risk, both in terms of systemic vulnerability and systemic risk contribution, i.e., the ESG performance can dampen the two-way transmission of shocks between individual firms and the system. The results are robust to proxy measures of systemic vulnerability and systemic risk contribution, as well as to winsorize all variables and lag the core explanatory variables. Our study provides a new angle from the ESG performance for regulating systemic risk.