Navigating Uncertainty: How Climate Policy Uncertainty Drives Firms’ Green Transformation

Abstract

As climate change intensifies, climate-related policy instruments have become essential tools for governments to mitigate climate risks. The formulation of such policies typically involves balancing economic growth and ecological goals while ensuring fairness and feasibility, often resulting in frequent policy adjustments. Drawing on panel data from A-share listed firms in China between 2008 and 2023, this study conducts a comprehensive investigation into how climate policy uncertainty affects corporate green transformation, with a particular focus on the underlying mechanisms. The empirical evidence shows that climate policy uncertainty serves as a significant catalyst in promoting firms’ green upgrading. Mechanism analysis indicates that this uncertainty has enhanced enterprises’ environmental awareness, encouraged their green investment, and promoted strategic planning oriented towards environmental sustainability. Further heterogeneity analysis reveals that the positive effect is especially pronounced in state-owned enterprises, labor-intensive industries, and firms exposed to high levels of climate risk. This study enriches the understanding of corporate behavioral responses under climate-related policy uncertainty and offers practical implications for optimizing policy design to support sustainable transformation in the corporate sector.