Citation: Zhao, Y.; Elahi, E.; Khalid, Z.; Sun, X.; Sun, F. Environmental, Social and Governance Performance: Analysis of CEO Power and Corporate Risk. Sustainability 2023, 15, 1471. https://doi.org/10.3390/ su15021471 Academic Editor: David K. Ding Received: 22 November 2022 Revised: 22 December 2022 Accepted: 6 January 2023 Published: 12 January 2023 Copyright: © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). sustainability Article Environmental, Social and Governance Performance: Analysis of CEO Power and Corporate Risk Yan Zhao 1 , Ehsan Elahi 2, *, Zainab Khalid 3 , Xuegang Sun 4, * and Fang Sun 1 1 School of Management, Shandong University of Technology, Zibo 255000, China 2 School of Economics, Shandong University of Technology (SDUT), Zibo 255049, China 3 School of Economics and Management, Southeast University, Nanjing 210009, China 4 School of Economics and Management, Hebei University of Technology, Tianjin 300130, China * Correspondence: ehsanelahi@cau.edu.cn (E.E.); 202221703059@stu.hebut.edu.cn (X.S.) Abstract: This study explores the relationship between a company’s Environmental, Social, and Governance (ESG) performance, and corporate risk. Moreover, the study emphasizes how CEO power moderates this relationship. Using a sample of Chinese A-share listed enterprises from 2011 to 2018, it is found that better ESG performance can reduce firms’ risk. The negative relationship between ESG performance and corporate is stronger for the company with greater CEO power. This link is weaker for state-owned firms and stronger for firms with lower institutional investor holdings. Furthermore, ESG performance mainly affects enterprise risk through three channels: firm reputation, information transparency, and internal control. Generally, firms with better ESG performance are more likely to have sound risk management frameworks. Our findings provide empirical evidence for implementing an ESG information disclosure system and promoting responsible investment in the capital market. Keywords: environmental performance; governance performance; corporate risk; CEO power; China 1. Introduction Since the signing of the Paris Agreement, the concept of ESG (Environmental, Social, and Governance) has attracted the attention of academic circles and society alike [1]. First coined in 2005, ESG is a framework that helps stakeholders understand how an organization manages risks and opportunities according to environmental, social, and governance criteria. ESG takes the holistic view that sustainability extends beyond just environmental issues. ESG is expected to promote the sustainable development of enterprises, improve the efficiency of financial capital allocation, and promote the comprehensive transformation and upgrading of the economy. ESG factors reflect business issues that can directly or indirectly impact a company’s balance sheet, income statement, risk profile, and cost of capital, despite not being inherently financial [2]. It is, therefore, important to understand the economic consequences of ESG. Prior research on this issue mainly examines the direct economic effects of corporate ESG performance, such as effects on financial performance or market value [3–5], but little is known about whether and how ESG performance affect the firm risk, while risk and reward are both important aspects in considering the economic effects. Therefore, our study investigates the impact of ESG performance on firm risk. ESG is frequently seen as counter-to-shareholder value [6]. Shareholder value advo- cates that the company’s sole social responsibility is to make as much profit as possible for shareholders [7]. However, firms have experienced increased external pressure to allocate firm resources to ESG efforts in the last decade. On the other hand, stakeholder value advocates view ESG efforts as the right thing to do, and they call for firms to generate value for all stakeholders. These two streams of thought on firms’ ESG efforts lead to dramatically different normative views on whether firms should pursue these activities. Sustainability 2023, 15, 1471. https://doi.org/10.3390/su15021471 https://www.mdpi.com/journal/sustainability