How does climate risk impact corporate green investment? Evidence from Chinese listed firms

In the context of global efforts to actively address climate change, identifying and clarifying the incentive mechanisms whereby climate hazards impact corporate green investment behavior has become an urgent research issue that demands attention. Drawing on unbalanced panel data from Chinese A-share listed firms spanning 2007 to 2022, this study employs text analytics to measure how often terms related to climate risk appear in annual reports, develops a firm-specific climate risk metric, and investigates both the effects and pathways through which firm-level climate risk acts on corporate green investment. Findings indicate that climate risk significantly increases corporate green investment levels. This result holds true following multiple robustness checks and the use of instrumental variables to tackle potential endogeneity problems, with a stronger impact observed among state-owned firms, large-size firms, and heavy polluting firms. Mechanism analysis reveals that climate risk promotes green investment by driving internal diversification and enhancing external media attention. Both internal environmental background executives and external investor attention strengthen the positive impact of climate risk on green investment. Further analysis indicates that climate risk not only drives firms to increase green investment but also helps improve their ESG performance. This research adds to studies examining how climate risk affects corporate decision-making, offering a theoretical foundation and policy insights for Chinese and global firms to manage climate-related hazards and accomplish green conversion.