Geopolitical risk and firms’ eco-innovation: International evidence

Abstract

Geopolitical risk (GPR) has emerged as one of the most significant sources of uncertainty facing firms in the modern global economy, yet its impact on corporate environmental strategy remains poorly understood. This study explores the impact of GPR on firm eco-innovation using data from 42 countries from 2002 to 2022. Results show that heightened GPR is negatively and significantly associated with firm eco-innovation through mechanisms such as reduced green R&D investment and heightened cash flow volatility. These findings remain robust across alternative eco-innovation and GPR measures, and advanced econometric techniques, including propensity score matching, and entropy balancing. Further, we find that firm characteristics such as board independence and gender diversity, as well as country-level factors including sustainable development and eco-innovation, significantly mitigate the adverse impact of GPR on firm eco-innovation. We also find that the impact of GPR on firms’ eco-innovation varies across industries and is more pronounced among internationally exposed firms. By highlighting these dynamics, the findings contribute to a better understanding of how firms can sustain environmental initiatives amid geopolitical uncertainty, offering insights for policymakers and corporate managers in fostering resilience and sustainability.