Climate risk, ESG performance, and ESG sentiment in US commercial banks

We measure US commercial banks' exposure to and materiality of physical climate risk by examining branch-level data. Our location-specific climate risk measure is pos- itively associated with banks' ESG performance and negatively associated with stake- holders' sentiment regarding ESG issues. Furthermore, banks that experience climate risk shocks, as proxied by NOAA billiondollar disasters, improve ESG performance and receive positive ESG sentiment accordingly compared with matched banks. While negative sentiment due to climate risk exposure is associated with worsened financial performance, stronger ESG engagement mitigates this adverse effect.