The impact of climate risk on corporate green innovation: stimulating or inhibiting?

PurposeThis 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/approachThis 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.FindingsThe 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 implicationsThis 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/valueConsidering 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.