Assessing the effect of climate policy uncertainty on corporate carbon cost leadership strategy: Evidence from China

Frequent extreme climate events have heightened climate policy uncertainty (CPU) and incorporating the social cost of carbon has become a key element for countries seeking to improve their institutions in response to climate risks. Focusing on corporate efforts, this study innovatively constructs a carbon cost leadership strategy (CCLS) index for Chinese listed companies from 2010 to 2024 using a text-based machine learning approach. Drawing on institutional theory, we examine the relationship between CPU and firms' adoption of CCLS. Our findings indicate that CPU significantly inhibits the implementation of CCLS, primarily because CPU increases firms' operational risks and undermines firms' capacity to respond to climate regulations. Heterogeneity analysis reveals that this negative effect is more pronounced for state-owned enterprises, firms with low climate risk perception, those in low carbon-exposure and non-technology-intensive industries, and firms located in regions with weak public–government climate engagement. This study enriches the understanding of the social impacts of climate policy from the perspective of corporate carbon cost management and provides new insights for emerging economies to improve their social cost of carbon assessment systems and enhance firms' climate response capabilities.