Research on the impact of environment, society, and governance (ESG) on firm risk: An explanation from a financing constraints perspective

•We examine the impact of ESG performance on firm risk under the green and low-carbon economic development model.•We discuss the impact mechanism of ESG performance on firm risk from the perspective of financing constraints in the setting of China.•Positive ESG performance has a significant inhibitory impact on firm risk, and this impact is heterogeneous due to differences in firm size and ownership.•Our findings enrich the research perspective in the field of ESG. With the concept of sustainable development becoming a consensus in social development, external factors such as environment, society, and governance (ESG) are gradually attracting the attention of enterprises and their stakeholders. Firm risk is crucial for the survival and development of enterprises, but few studies have focused on the impact of ESG performance on firm risk. Therefore, based on quarterly data of 1587 A-share listed companies in China from 2018 to 2022, this study empirically discusses the impact of ESG performance on firm risk by integrating various methods. The results indicate that positive ESG performance can significantly reduce firm risk. Further analysis indicates that positive ESG performance is beneficial for alleviating firm financing constraints and thereby reducing firm risk. Meanwhile, the inhibitory effect of ESG performance on firm risk may exhibit heterogeneity due to differences in firm size and ownership. Studying the impact of ESG performance on firm risk from the perspective of financing constraints provides new evidence for a deeper understanding of the value of ESG performance, and also provides a new and effective approach for risk management in enterprises.