How Does Climate Risk Shape Firms to Green Investment? The Roles of External Stakeholder Attention and Internal Strategic Orientation

Abstract

As climate change increasingly threatens sustainable development goals, climate risk has emerged as a critical factor shaping corporate strategic decisions and capital allocation behavior. Using a sample of Chinese A-share listed firms over the period 2008 to 2024, this study constructs a firm-level climate risk index through textual analysis of annual report disclosures and examines its effect on corporate green investment. We find that climate risk is positively associated with corporate green investment. Mechanism analysis reveals that climate risk operates through dual pathways: it enhances firms’ green strategic orientation as the internal governance mechanism, and heightens public green attention as the external governance mechanism, both of which are positively related to increasing firms’ green investment. Heterogeneity analysis shows that the promoting effect is more pronounced for state-owned enterprises, heavy-polluting firms, firms with negative media coverage, and firms located in northern regions of China. Further analysis reveals that climate risk is more strongly associated with green transformation investment over end-of-pipe treatment investment, and firms that increase green transformation investment in response to climate risk achieve stronger firm growth. These findings provide new evidence on how climate risk shapes corporate environmental behavior, offering practical insights for promoting sustainable investment and advancing corporate contributions to sustainable development.