Constraining or Enabling? The Impact of Climate Transition Risk on Green Innovation in China

The literature on the climate transition risk–green innovation nexus remains divided: some studies find negative effects, while others report positive effects. Using data on Chinese A-share listed firms from 2011 to 2023, we analyze firm-level directional sensitivity to public climate attention and document that, at the aggregate level, climate transition risk is not significantly related to green innovation. However, decomposition reveals polarization: positive sensitivity is associated with higher green innovation, whereas negative sensitivity is linked to lower green innovation. Two channels operate in opposite directions: financing constraints ease with positive sensitivity and tighten with negative sensitivity, and R&D investment rises with positive sensitivity and falls with negative sensitivity. The patterns are more pronounced among manufacturing firms, non-state-owned enterprises, firms without financial backgrounds, and firms in central-western or low-marketization regions. A policy-shock analysis around the Paris Agreement indicates that regulatory uncertainty amplifies the adverse effect associated with negative sensitivity. These findings suggest that climate policy and support instruments should account for firm-level heterogeneity and target financing and R&D frictions that condition the innovation response.