Climate Change, Management Risk Perception, and Corporate Innovation

Using public data from Chinese A-share listed companies, this paper investigates impact of extreme climate risks on corporate innovation. The results show that the managerial risk perceptions from extreme climate changes exert a constraining effect on companies’ innovation efforts, a relationship that holds true across various dimensions of extreme climate events, including scope, magnitude, frequency. This association persists even after accounting for the potential impact of changes in industry policies on firm innovation. Moreover, our analysis suggests that higher-risk response capacity can moderate the negative impact of climate change on company innovation. In addition, companies’ digital transformation plays an active role in increasing managers’ confidence and activating companies toward climate risks through innovation. In summary, this paper enriches the management and response strategies of enterprises for climate risks through the path of enterprise independent innovation. The implications of this research are significant in terms of promoting corporate innovation, mitigating and addressing substantial risks, and fostering high-quality economic development.