A one-two punch to the economy: Climate vulnerability and corporate innovation strategies

74 Pages Posted: 1 Mar 2021 Last revised: 30 Dec 2024

See all articles by Fengfei Li

Fengfei Li

Deakin University - Deakin Business School

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: December 07, 2024

Abstract

This paper investigates the relationship between country-level climate vulnerability and firm innovation using a sample of 60,028 firms from 88 countries during 1995-2019. Our analysis reveals a negative association between climate vulnerability and firm innovation, which can be attributed to several possible mechanisms such as decreased responsiveness of R&D to investment opportunities, reduced private value of innovation, lower incentives to innovate, managerial career concerns, and limited financing. The silver lining is that climate vulnerability promotes international innovation collaboration and strategic partnerships (e.g., research collaboration, technology, and in-licensing). It also increases the proportion of climate change mitigation technologies while discouraging risky innovation strategies. We also find that climate vulnerability through supply chains and customer locations impacts innovation. Our main results are supported by difference-indifferences and instrumental variable approaches. Overall, this study underscores that climate change poses challenges for firms to innovate but also encourages cross-border collaboration and sustainable innovation.

Keywords: JEL classification: F20, G32, G15, O31, Q55 climate vulnerability, patents, innovation, R&D, climate risk, climate change

JEL Classification: F20, G32, O31, O33, Q55

Suggested Citation

Li, Fengfei and Lin, Chen and Lin, Tse-Chun, A one-two punch to the economy: Climate vulnerability and corporate innovation strategies (December 07, 2024). HKU Jockey Club Enterprise Sustainability Global Research Institute - Archive, Available at SSRN: https://ssrn.com/abstract=3777313 or http://dx.doi.org/10.2139/ssrn.3777313

Fengfei Li (Contact Author)

Deakin University - Deakin Business School ( email )

Australia

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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