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How does climate change exposure affects green innovation in China: A framework for categorizing innovation

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  • Yang, Chao
  • Song, Di

Abstract

This study examines the impact of firm-level climate change exposure (CCE) on green innovation among publicly listed enterprises in China from 2007 to 2023. Using a framework that categorizes types of innovation, the findings indicate a significant positive relationship between CCE and green innovation. Specifically, physical CCE positively influences firms' reactive green innovation, while regulatory CCE significantly promotes proactive green innovation. These results suggest that increased CCE enhances firms' capacity for green innovation, and this relationship remains robust across various robustness checks. The study also identifies key mechanisms in this relationship, highlighting the roles of environmental uncertainty and corporate social responsibility. Increased physical CCE leads to more reactive green innovation by heightening environmental uncertainty, whereas greater regulatory CCE encourages proactive green innovation by motivating firms to meet their environmental social responsibilities. This study offers valuable insights into how climate change drives corporate green innovation, providing potential explanations for mixed findings in previous studies and practical guidance for implementing environmental regulations to advance sustainable development.

Suggested Citation

  • Yang, Chao & Song, Di, 2025. "How does climate change exposure affects green innovation in China: A framework for categorizing innovation," International Review of Financial Analysis, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:finana:v:103:y:2025:i:c:s1057521925003400
    DOI: 10.1016/j.irfa.2025.104253
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