The impact of environmental uncertainty on ESG performance: Emotional vs. rational

This study analyzes the direct impact of environmental uncertainty on environmental, social, and governance (ESG) performance, while verifying the existence of a mediating path from an “emotional” and “rational” perspective. In addition, a three-dimensional heterogeneity analysis framework of “company-market-government” is established to explore the similarities and differences in the relationship between the two in different scenarios. The study finds that: (1) Environmental uncertainty reduces the ESG performance, and the conclusion remains valid after a series of robustness tests; (2) There is a mediating path between investor sentiment (i.e., “emotional”) and green innovation (i.e., “rational”) in the dampening effect of environmental uncertainty on corporate ESG performance, and green innovation has a masking effect on the direct impact; (3) In further analysis, the dampening effect of environmental uncertainty on ESG performance is more pronounced among companies in the “mature” stage and “small market, big government”. Facing the background of environmental uncertainty, this study enriches the mechanism of improving the corporate ESG performance, which is of practical significance to companies, markets, governments and other stakeholders. [Display omitted] •Environmental uncertainty weakens ESG.•Green innovation protects against external corporate risks.•ESG in mature companies is more focused on environmental uncertainty.•Constructing a “market-driven and government-guided” ESG scenario.