Bless or curse, how does extreme temperature shape heavy pollution companies' ESG performance?-Evidence from China

Climate change and the increase in extreme weather events have a significant impact on the production and operation of businesses. However, existing literature has not fully discussed how climate risks affect corporate responsibility and sustainable behavior. This study uses a sample of heavily polluting companies listed on China's A-share market from 2010 to 2020 to examine the causal relationship between the increase in extreme temparature events and company ESG performance. The results show that an increase in extreme high-temperature weather significantly improves company ESG performance. After conducting robustness tests by changing the lag years and merging temperature bins, our main conclusions remain valid. Our empirical results show that heavily polluting companies are sensitive to changes in high-temperature weather. They can perceive climate risks from extreme temperature events and strive to improve their responsible and sustainable business practices. This paper also discusses the heterogeneity behind this impact. In terms of external environmental, companies that receive more attention from analysts and industry research reports are more sensitive to extreme high temperatures and are more proactive in improving their sustainable business practices. In regions with stronger economic policy uncertainty, heavily polluting companies make less effort to improve their sustainable business practices due to the increase in extreme temperature. The impact of environmental regulation intensity on this relationship is not significant. In terms of executive characteristics, the education level and overseas education experience of senior executives do not have a significant impact on their perception of extreme temperature. In terms of green transformation efforts, we find that heavily polluting companies with more green transformation efforts have weaker perception abilities towards extreme temperature. This paper enriches the research on how climate risks affect corporate operations and provides empirical evidence for how companies can respond to climate change risks by improving their ESG performance.