Greening Under Pressure: Climate Change Exposure and Eco-Innovation

Abstract

This study explores the impact of climate change exposure on corporate eco-innovation. Recognizing the urgent need to address climate change, we examine how firms directly respond to climate risks through eco-innovation. Our findings indicate that climate change exposure is positively associated with corporate eco-innovation. To further understand the mechanisms, we show that external forces such as product market competition and analyst coverage, and internal forces such as corporate social responsibility practices and sustainability commitments, strengthen this relationship. We also document that landmark policy events, including the 2006 Stern Review and the 2015 Paris Agreement, intensify firms' eco-innovation responses to climate risks. Overall, our results suggest that firms facing higher climate change exposure are more committed to eco-innovation and that institutional pressures encourage more proactive and comprehensive strategies for sustainability and long-term competitiveness.