The impact of firms’ climate risk perception on green innovation: Empirical evidence from China

Climate risk perception is the public’s subjective judgments on the characteristics and severity of climate risks. This paper examines the impact of firms’ climate risk perception on green innovation, with a focus on China as a sample. The results show that an increase in firms’ climate risk perception promotes green innovation. This finding remains robust across alternative models, measurements, and endogeneity tests. Mechanism tests reveal that heightened climate risk perception leads to a reduction in the proportion of non-green innovation relative to green innovation and a decrease in financialization. This study also finds that the digitalization level of firms strengthens the positive relationship between climate risk perception and green innovation, while financing constraints weaken it. Furthermore, climate risk perception explained by climate physical risks enhances corporate green innovation, whereas climate risk perception explained by climate policy uncertainty reduces corporate green innovation. Our research holds significant theoretical and practical implications for understanding how climate risks influence green innovation.