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Climate Risks and Firm Innovation

Author

Listed:
  • Gu, Grace

    (University of California, Santa Cruz)

  • Mulalic, Ismir

    (Department of Economics, Copenhagen Business School)

  • Pozzoli, Dario

    (Department of Economics, Copenhagen Business School)

  • Wu, Jinhong

    (The Technical University of Denmark)

Abstract

Climate-related risks have increased significantly over the past two decades, including both physical risks (such as extreme weather events) and transition risks (arising from climate change mitigation policies). This paper examines how these risks relate to firms’ innovation outcomes, including those related to green technologies. We first develop a model in which firms choose how many workers to employ for R&D and production activities in response to rising climate risks. The model predicts an increase in green innovation and overall innovation under certain conditions. Empirical evidence from Danish administrative data generally supports these predictions, showing that firms exposed to climate risks exhibit higher innovation activity, especially in green technologies.

Suggested Citation

  • Gu, Grace & Mulalic, Ismir & Pozzoli, Dario & Wu, Jinhong, 2026. "Climate Risks and Firm Innovation," Working Papers 3-2026, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2026_003
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    Keywords

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    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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