Climate risk and adaptive green innovation: evidence from China

Can enterprises respond to climate risks through green innovation? This is a question of shared concern across society. Using a sample of Chinese A-share listed companies from 2009 to 2022, this paper empirically examines the impact of climate risk on green innovation in enterprises and its mechanisms. The study finds that climate risk can indeed significantly promote green innovation in enterprises. On average, for every one standard deviation increase in the climate risk index, the level of green innovation in enterprises rises by 2.196 percentage points. Mechanism analysis reveals that climate risk drives enterprises to engage in green innovation through digital transformation and R&D investment. This promoting effect is stronger in non-state-owned enterprises and high-pollution industries. Further research finds no significant relationship between green innovation and green total factor productivity in enterprises, suggesting that the motivation for green innovation may not solely arise from addressing climate risks but could also be influenced by government subsidies and other factors. The conclusions of this paper are significant for improving enterprises' ability to cope with climate risks and provide theoretical support for governments in formulating climate adaptation policies.

Purpose This study aims to examine the impact of climate risk on corporate green innovation, as well as the roles of digital transformation and the “dual carbon” goals on moderating the relationship between climate risk and corporate green innovation in Chinese firms. The channels through which climate risk affects corporate green innovation are further investigated. Design/methodology/approach This study uses a sample of Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges during the period from 2013 to 2022. Tobit regressions are applied to examine the main research questions and ordinary least squares regressions are used to make channel analyses. The textual analysis method is used to measure the firm-level climate risk. Findings The authors find that climate risk stimulates firms to strengthen green innovation including both strategic and substantive innovation. Digital transformation and the “dual carbon” goals can stimulate the effects of climate risk on corporate green innovation. The results still hold after a series of robustness tests and accounting for potential endogeneity. Additional analyses provide evidence that the mechanisms underlying such stimulating effect are increasing corporate environmental disclosure and reducing the first type of agency costs. Additional analyses further confirm that the stimulating effect of climate risk on corporate green innovation is more pronounced in firms with high governance levels, from technology-intensive industries, and located in regions with a high level of marketisation. Practical implications This study suggests that firms incorporate climate risk into their strategic frameworks and effectively use digital technologies and policy incentives to strengthen their green innovation. Originality/value Considering China’s unique institutional context, this study provides the latest evidence on how the “dual carbon” goals moderate the relationship between climate risk and corporate green innovation. This study further adds to the extant literature by distinguishing green innovation with different motivations and revealing plausible channels from the perspective of corporate governance through which climate risk affects corporate green innovation.

The inability to reliably quantify firms' climate change exposure has become a primary obstacle preventing academics from thoroughly investigating climate impacts on micro-organizations. In this study, we construct firm-level climate risk indicators using hand-collected data on meteorological factors and investigate whether and how climate risk affected the paradoxical relation between corporate green innovation and its' environmental, social, and governance (ESG) scores on the basis of the Chinese context. We document that the climate risk is significantly positively (or negatively) related to the negative (or positive) green innovation-ESG disconnect, implying that climate risk enhances the loose-coupling motives between green innovation and ESG for addressing internal efficiency and external legitimacy conflict. The above disconnect effect of climate risk, namely green innovation as compliance means and ESG as ends fail to complement each other as comparative advantages, is less pronounced for private-owned enterprises, firms with high corporate governance quality, and those with powerful CEOs. Furthermore, the disconnect effect of climate risk results in severe corporate performance volatility and diminishes future growth potential. Overall, this study contributes to the literature on climate risk at the micro level and offers initial evidence that climate risk causes means and ends cannot be mutually justified by demonstrating the green innovation-ESG disconnect, which has conducted few empirical research so far.

Green innovation drives economic growth, facilitates the transition to sustainability, and strengthens enterprises against potential climate-related disruptions. However, the relationship between firm-level climate risks and corporate green innovation has been insufficiently explored. This study conducts a textual analysis of the annual reports and corporate social responsibility (CSR) reports of Chinese A-share listed firms to develop indicators for assessing firm-level climate risks. It examines the impact of climate risks on corporate green innovation. The results reveal that firms tend to intensify their green innovation efforts in response to escalating climate risks, particularly in substantive green innovation. Furthermore, the positive correlation between firm-level climate risks and green innovation is more pronounced and significant for firms in highly polluting and high-tech industries. These insights shed light on the influence of corporate climate risk on green innovation. Additionally, our research provides theoretical insights and practical recommendations for policymakers seeking to design targeted strategies that promote and support green innovation across various sectors.

Green innovation is a crucial strategy for addressing climate risks, yet such risks’ impacts on firms’ green innovation remains a complex and critical issue. Using a sample of A-share listed companies in China, this research finds that climate risk significantly inhibits firms’ green innovation by increasing their operating costs, worsening financial situations, and lowering capital allocated to R&D. This inhibitory effect is more pronounced for firms located in typhoon-prone, flood-prone, and low temperature and severe cold areas. Moreover, climate risks substantially suppress green innovation in private enterprises, firms with limited government subsidies, and companies within nonpolluting industries. Further research demonstrates that environmental, social, and governance factors positively moderate the relationship between climate risk and firms’ green innovation. These findings deepen our understanding of how climate risk impacts firms’ decision-making, highlight the importance of corporate social responsibility, and provide practical guidance for sustainable development and climate adaptation.

Chinese heavy-polluting companies have been facing enormous challenges in responding to climate risk and energy transformation. This paper uses panel regression model and investigates the impact of climate risk on corporate green innovation in Chinese heavy-polluting listed companies from 2011 to 2020. The empirical results show that climate risk adversely affects green innovation in heavy-polluting companies, and this effect persists throughout a series of robustness and endogeneity tests. Climate risk may affect corporate green innovation through decreasing R&D investment, lowing resource allocation efficiency and increasing company risk. Climate risk has a greater negative impact on mid-western, state-owned and large-size heavy-polluting companies, but can be mitigated by the development of green finance, digital finance and marketization. These findings may help heavy-polluting companies fully utilize existing resources, policies, and channels for green innovation and mitigate climate risks.

This study investigates the impact and underlying mechanisms of corporate climate risk exposure on both substantive and strategic green technology innovation, employing a sample of A-share listed firms in China’s Shanghai and Shenzhen Stock Exchanges from 2014 to 2022. Empirical results reveal that corporate climate risk exerts a significantly positive impact on green technology innovation, with this effect remaining robust across multiple robustness tests, including two-stage least squares (2SLS), dynamic generalized method of moments (GMM), and difference-in-differences (DID) models. Mechanism analysis identifies two critical mediating pathways: increased innovation investment and improved ESG ratings, which collectively drive the positive relationship between climate risk and green innovation. Further heterogeneous analysis shows that the positive effect is amplified by higher largest shareholder ownership and financial constraints, but attenuated by digital transformation and institutional ownership. Additionally, the impact is less pronounced in heavily polluting industries and state-owned enterprises. Both physical and transition climate risks independently contribute to promoting substantive and strategic green technology innovation, with the positive effect persisting significantly even when considering a seven-year lag, indicating its long-term sustainability. These findings advance the theoretical understanding of the climate risk-innovation nexus and provide actionable implications for policymakers, investors, and firms navigating climate change challenges.

This study empirically investigates the impacts of corporate climate risk, physical climate risk, and transition climate risk on firms’ total factor productivity (TFP), along with their underlying mechanisms, by employing a panel multidimensional fixed-effects model. The sample comprises Chinese listed companies spanning the period from 2007 to 2022. The findings reveal a significant positive effect of corporate climate risk and transition climate risk on corporate TFP, whereas physical climate risk exerts a substantial negative impact. Specifically, corporate climate risk and transition climate risk enhance TFP by elevating green technological innovation levels. Conversely, physical climate risk amplifies financing constraints, thereby diminishing TFP. Notably, these effects are accentuated in firms with higher return on assets, superior internal control quality, and greater institutional investor ownership, particularly among heavily polluting enterprises. Furthermore, while the positive effects of corporate climate risk and transition climate risk on TFP persist with a four-year lag, the negative impact of physical climate risk on TFP diminishes and becomes statistically insignificant over the same period.

Climate risk and corporate energy strategies: Unveiling the Inverted-N relationship

How climate risk drives corporate green innovation: Evidence from China

This paper studies the ESG behavior and its influencing factors of manufacturing enterprises under the challenge of climate risk from the enterprise level. It is found that climate risk has a significant positive impact on ESG performance of enterprises, indicating that enterprises are more inclined to strengthen management and investment in environment, society and governance when responding to the challenge of climate change. Transformation risk is the main driving force, while physical risk has no significant impact. In addition, the analysis of regional differences shows that climate risk has a significant impact on the ESG performance of manufacturing enterprises in the central and eastern regions, but not on the western regions. Heavy polluting enterprises take more measures of technological transformation and upgrading in the face of climate risks, and their ESG performance is affected by climate risks 40% more than that of non-heavy polluting enterprises. The study also found that the higher the level of green innovation, the greater the impact of climate risk on the firm's ESG performance. Therefore, enterprises should attach importance to green innovation, improve environmental and social performance through technological innovation, strengthen climate risk management, and promote green innovation; Policy makers should take regional differences into account to formulate strategies, pay attention to the transformation of heavy polluters, promote cross-sectoral cooperation, and establish continuous monitoring and evaluation mechanisms to improve the performance of enterprises in ESG.

Physical climate risks are reshaping economic geography and pose a direct threat to the collaborative networks of green innovation that underpin mitigation and adaptation. This paper examines how climate risk differentially affects three core structural roles that cities occupy in green innovation collaboration networks: hubs, which aggregate knowledge and are measured by degree centrality; channels, which transmit information and are captured by closeness centrality; and bridges, which link resources and are reflected in betweenness centrality. Using a panel of Chinese cities over the past decade and two way fixed effects models, we estimate the impacts of climate risk on cities’ network roles. The results show that climate risk significantly reduces all three roles, but the negative effects on channels and hubs are substantially larger than the effect on bridges. This pattern is consistent with a defensive structural reconfiguration of the network that emphasizes resilience at the expense of efficiency. The specific pathways and magnitudes of change depend on local financial conditions, regulatory responses, a city’s position in the urban hierarchy, and the type of climate risk encountered. These findings incorporate exogenous environmental pressure into theories of network evolution and provide empirical support for shifting regional innovation policy from an efficiency first orientation toward a resilience oriented innovation ecosystem.

As climate change intensifies, climate-related risks have become a key factor in business decisions and innovation. This study examines corporate climate risks using data from Chinese A-share listed companies from 2016 to 2023. It investigates the mechanisms through which climate risks drive green innovation. The results show that higher climate risks significantly boost green innovation, not only in quantity, but also in quality and efficiency. This occurs mainly through internal corporate adjustments and external oversight. Further analysis reveals that the positive impact of climate risks on green innovation is especially strong for larger firms, companies in regions with less strict environmental regulations, and those in highly competitive industries. These findings provide both theoretical guidance and practical insights for companies seeking strategic adaptation and long-term sustainable growth in the face of climate risks.

The quantitative analysis of the economic impact of climate risk is an effective means of understanding and taking reasonable preventative steps in relation to the climate-related economic crisis. This paper takes panel data from China’s 31 provinces for 2009 to 2021, combined with a regulating intermediary effect model, to determine the climate risk faced in China and its influence mechanism on high-quality economic development, in an attempt to determine how to adjust the path. The results show that, first, when using a different regression model, we see that climate risks pose a significantly inhibiting effect on high-quality economic development in China. Secondly, when the climate risk increases by 1%, high-quality economic development drops by 0.0115%. When the climate risk increases by 1%, this leads to a 14.9672% increase in the likelihood of natural disasters, causing high-quality economic development to be indirectly reduced by 0.1300%. Thirdly, green innovation has a multidimensional effect; it can both directly and indirectly impact the negative effects of inhibition, and indirect adjustment has a greater effect than direct adjustment. Such regulation has a greater effect on the input than on the output. Therefore, we should seek to more accurately understand the dangers of climate risk, effectively improve the five aspects of development, and strengthen the input of green innovation and thus the output of high-quality economic development in China.

Under the growing threat of global warming, green bonds have become a pivotal financial instrument to deal with climate change and promote sustainable development. However, the research on the affecting factors of green bond issuance remains scarce in the existing literature, particularly regarding the external influencing factors. In order to study the impact of climate risks faced by enterprises on green bond issuance and its influence mechanism, this paper takes A-share listed companies issuing green bonds in China as samples from 1 January 2000 to 31 December 2022, adopting the Probit model to study how climate risk faced by enterprises influences green bond issuance. The key findings of the research are as follows: the climate risk positively enhances green bond issuance through green transformation and green innovation. In addition, ownership concentration positively moderates the relationship between climate risk and green bond issuance, while managerial overconfidence negatively moderates the relationship. The effect of climate risk on green bond issuance is greater for larger firms, labor-intensive firms and firms with better environmental performance. Moreover, our research enriches green bond issuance theory, further supports the signal theory of green bonds, and provides theoretical guidance for the development of green bonds in China and other emerging market countries.