Leveraging climate risk disclosure for enhanced corporate innovation: Pathways to sustainable and resilient business practices

Lingbing Feng, Dasen Huang, Fengwen Chen and Fangnan Liao

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: In the context of global initiatives to mitigate climate change and biodiversity loss, corporations are increasingly confronted with environmental challenges. This study conducts a textual analysis of annual reports from Chinese A–share listed companies from 2007 to 2022, constructing a corporate climate risk disclosure index. This research investigates the influence of climate risk disclosures on corporate innovation outputs and explores the mechanisms driving this relationship. The findings indicate that climate risk disclosures substantially boost corporate innovation capabilities, primarily through elevating reputational capital, strengthening governance structures, and reduced financing costs. The results of the heterogeneity analysis reveal that the presence of institutional investors and a higher average age of management amplify the incentivizing effects of climate risk disclosure on innovation. In addition, this study examines the impact of climate risk disclosures on innovation inputs, efficiency, and quality, while also considering potential economic outcomes. These insights highlight the crucial influence of climate risk disclosures in promoting corporate innovation and sustainability, with valuable implications for policymakers seeking to enhance corporate transparency and innovation capabilities in response to climate challenges.

Keywords: Climate risk disclosure; Innovation; Textual analysis; Reputational capital; Corporate governance (search for similar items in EconPapers)
JEL-codes: G32 M14 O32 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006562

DOI: 10.1016/j.irfa.2024.103724

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