Beyond ESG: is climate performance the key driver of financial success in China’s fossil fuel industry?

Purpose This research aims to investigate how aggregate environmental, social and governance (ESG) commitment, conceptualized as a composite construct, affects the financial outcomes of companies active in China’s fossil fuel energy sector. It further examines the mediating role of the Climate Change Performance Index (CCPI), reflecting national climate policy strength, in shaping the ESG–financial performance relationship. Design/methodology/approach This research draws on panel data covering publicly listed Chinese energy firms between 2009 and 2021. The research applies the pooled mean group autoregressive distributed lag technique to address firm-level heterogeneity and cross-sectional dependence. Findings The findings indicate a positive relationship between aggregate ESG commitment and the financial performance of energy firms. This relationship is further strengthened by the CCPI, which acts as a partial mediator by showing that stronger national climate policies amplify the financial benefits of ESG practices. In addition, a reciprocal effect emerges, where ESG engagement and financial outcomes mutually reinforce each other, with robust climate policy acting as a key enabler. Originality/value This research addresses a significant gap by analyzing national climate performance, captured by the CCPI, in the ESG–finance nexus within China’s energy sector. By merging firm-level ESG indicators with macro policy metrics, the research offers novel perspectives on how national climate strategies can strengthen corporate sustainability efforts.