Climate Risks and Firm Innovation

Grace Gu (), Ismir Mulalic (), Dario Pozzoli and Jinhong Wu ()
Additional contact information
Grace Gu: University of California, Santa Cruz
Jinhong Wu: The Technical University of Denmark, https://www.dtu.dk/english/person/jinhong-wu?id=214164&entity=profile

No 3-2026, Working Papers from Copenhagen Business School, Department of Economics

Abstract: Climate-related risks have increased significantly over the past two decades, including both physical risks (such as extreme weather events) and transition risks (arising from climate change mitigation policies). This paper examines how these risks relate to firms’ innovation outcomes, including those related to green technologies. We first develop a model in which firms choose how many workers to employ for R&D and production activities in response to rising climate risks. The model predicts an increase in green innovation and overall innovation under certain conditions. Empirical evidence from Danish administrative data generally supports these predictions, showing that firms exposed to climate risks exhibit higher innovation activity, especially in green technologies.

Keywords: Climate change; Physical risks; Transition risks; Firms’ innovation (search for similar items in EconPapers)
JEL-codes: Q54 Q55 Q56 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2026-01-23
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