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

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  • Feng, Lingbing
  • Huang, Dasen
  • Chen, Fengwen
  • Liao, Fangnan

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.

Suggested Citation

  • Feng, Lingbing & Huang, Dasen & Chen, Fengwen & Liao, Fangnan, 2024. "Leveraging climate risk disclosure for enhanced corporate innovation: Pathways to sustainable and resilient business practices," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006562
    DOI: 10.1016/j.irfa.2024.103724
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    More about this item

    Keywords

    Climate risk disclosure; Innovation; Textual analysis; Reputational capital; Corporate governance;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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