Corporate ESG Performance and Systematic Risk Exposure: Cross-Sectional Evidence from Chinese A-Share Firms

Abstract

Environmental, social, and governance (ESG) issues play an increasingly visible role in both academic research and investment practice. However, most existing studies emphasize stock returns or total risk, with relatively limited attention to firms’ exposure to aggregate market risk. Using a large sample of Chinese A-share listed firms, this paper studies how cross-sectional differences in ESG performance relate to systematic risk exposure, measured by firm-year CAPM beta. Firm-year betas are constructed from monthly stock returns using a 36-month rolling window, while ESG performance is obtained from the Huazheng ESG rating system. ESG is treated as a firm-level characteristic, and the analysis relies on cross-sectional regressions with controls for firm size and year fixed effects. The evidence indicates that firms with stronger ESG performance tend to exhibit lower exposure to marketwide risk. This pattern is observed across firms of different sizes and reflects a combined effect of environmental and governance dimensions rather than a single component. The findings are descriptive in nature and do not imply causal relationships.