Do climate risks impede green innovation?

Abstract

Climate change poses significant challenges to global sustainability transitions, with emerging markets confronting distinct systemic barriers including severe resource constraints and institutional voids that disproportionately impede green productivity. While green innovation inherently demands substantial R&D investments and extended development cycles, its progression under resource-constrained countries remains underexplored. Drawing on resource-based and institution-based views, this study presents the first empirical evidence of the adverse impact of the prince-level climate risk on green innovation. It identifies financing constraints, operational solvency, and public awareness as key channels through which climate risk affects green innovation. Employing a difference-in-differences design that exploits China's national climate policy implementation as a quasi-natural experiment, we reinforce causal inference. Notably, state-owned enterprises, a dominant force in China's economy, underperform in green innovation due to agency problems whereas non-SOEs demonstrate greater adaptive capacity. These findings challenge conventional assumptions about climate risks' positive role in driving green innovation and offer insights for policymakers and managers addressing the green transition paradox in emerging markets.