Strategic climate risk management and innovation outcomes: Insights from China’s industrial and policy landscape

Abstract

This study investigates the influence of climate risk perception (CRP) on environmental innovation among 1511 Chinese A-share-listed firms during 2010–2021. Empirical findings reveal a significant positive relationship between CRP and environmental innovation, which is conditioned by Economic Policy Uncertainty (EPU). Mechanism analysis shows that environmental innovation exploitation, innovation based on existing or historical patents, is more encouraged with higher CRP, while channelling analysis identifies transition risk, stemming from climate-induced supply chain disruptions, resource scarcity, and market volatility, as the central channel. Heterogeneity analysis reveals stronger effects in less competitive markets, manufacturing/heavy-polluting industries, non-state-owned enterprises (non-SOEs), and those characterized by stringent internal controls. A nonlinear inverted U-shaped relationship emerges: moderate CRP boosts innovation, while excessive risk perception hinders it. Nonetheless, the inflection point of this inverted U-shaped relationship lies within the sample range of CRP. This study contributes by distinguishing CRP from objective climate risk (CR) as a strategic cognitive antecedent, integrating macro boundary conditions (EPU) into a coherent theoretical framework, and highlighting innovation exploitation as a significant mechanism and transition risk as a critical channel, addressing gaps in prior literature on firm-level adaptive responses to climate change.