Leveraging climate risk disclosure for enhanced corporate innovation: Pathways to sustainable and resilient business practices

Abstract

In the context of global initiatives to mitigate climate change and biodiversity loss, corporations are increasingly confronted with environmental challenges. This study conducts a textual analysis of annual reports from Chinese A–share listed companies from 2007 to 2022, constructing a corporate climate risk disclosure index. This research investigates the influence of climate risk disclosures on corporate innovation outputs and explores the mechanisms driving this relationship. The findings indicate that climate risk disclosures substantially boost corporate innovation capabilities, primarily through elevating reputational capital, strengthening governance structures, and reduced financing costs. The results of the heterogeneity analysis reveal that the presence of institutional investors and a higher average age of management amplify the incentivizing effects of climate risk disclosure on innovation. In addition, this study examines the impact of climate risk disclosures on innovation inputs, efficiency, and quality, while also considering potential economic outcomes. These insights highlight the crucial influence of climate risk disclosures in promoting corporate innovation and sustainability, with valuable implications for policymakers seeking to enhance corporate transparency and innovation capabilities in response to climate challenges.