Retreating in Fear: Corporate Climate Risk and Green Innovation Quality in China

ABSTRACT

The impact of climate risk on micro‐organisations has received growing attention. However, whether and how climate risk affects corporate climate governance activities is not well understood. Leveraging meteorological station data, we construct firm‐level climate risk index to examine this relationship across Chinese listed firms during 2011–2020. Results demonstrate that green patent quality is diminished in response to the firms’ high level of climate risk, implying that corporate climate risk exposure tends to trigger a negative psychology of problem avoidance, which inhibits the quality of corporate green innovation. Besides, mechanism tests suggest that management emotion and management green attention are the primary channels to explain the above inhibitory effect. Further analyses reveal that this inhibitory effect is weaker for those firms with strong climate governance supervision. In a nutshell, this study provides new evidence for firms to objectively understand and mitigate adverse climate impacts by documenting the impact of Chinese firm‐level climate risks on green innovation quality.