Nonlinear impact of climate risk and financing environment on corporate green innovation: Evidence from green patenting

Confronted with escalating climate risks, understanding how firms adjust their innovation strategies has become increasingly important. This study examines the impact of climate risk on corporate green innovation. The results reveal a nonlinear, inverted U-shaped relationship between climate risk and green innovation, measured by both green patent applications and grants. Moderate climate risk stimulates innovation, while excessive risk suppresses it. Mechanism analysis indicates that financing constraints and human capital structure shape this nonlinear relationship. Further analysis shows that digital transformation enhances firms’ information processing capability, organizational coordination, and resource allocation efficiency, allowing firms to respond more actively to moderate climate risk and convert external pressure into innovation incentives. At the same time, digital transformation also amplifies firms’ sensitivity to excessive climate risk, making the inverted U-shaped relationship more pronounced. In addition, climate risk exerts heterogeneous effects on breakthrough and incremental innovation. Breakthrough innovation exhibits a significant inverted U-shaped relationship with climate risk because such innovation activities require substantial financial resources, long-term commitment, and greater tolerance for uncertainty. Further heterogeneity analysis indicates that the nonlinear effect is more pronounced among technology-intensive and high-technology firms, but weaker among asset-intensive firms. These findings provide new evidence on the nonlinear effects of climate risk and offer important implications for promoting high-quality green innovation under evolving environmental conditions.