Extreme weather events and firms’ eco-innovation: the role of psychological distance

How does exposure to extreme weather events influence firms’ eco-innovation? Drawing on Construal Level Theory, we argue that extreme weather events collapse psychological distance, transforming abstract climate change into concrete operational reality through two pathways (direct managerial cognition and indirect shifts in regional environmental concern). Using causal mediation analysis with 8,366 Spanish firms (2008–2016), we decompose the association of extreme weather episodes with eco-innovation into direct and indirect pathways, finding that the direct pathway predominates over the indirect. This relationship is strongest among small, lower-rigidity firms. Their reaction to heat waves and dry spells is nearly twice the aggregate estimate, whereas medium and large firms show null responses. Sectoral heterogeneity reinforces this pattern; services respond through the indirect pathway, while agriculture and manufacturing respond through direct operational necessity. These findings indicate that low organisational rigidity, not mere physical exposure, shapes whether extreme weather events are associated with eco-innovation.