Do climate extreme events stimulate or hinder green innovation? Evidence from the Italian manufacturing sector

• Climate extreme events can hinder firms’ green innovation in both the short and medium terms. • Low-tech sector firms are more adversely affected than those in high-tech sectors. • Our evidence underlines the critical need for sector-specific adaptation plans to protect and enhance firms' innovative capacities. The nexus between weather extreme events and firms’ propensity to adopt green innovation is theoretically ambiguous and still lacking empirical evidence. Combining a rich database on natural events, defined at provincial level, with balance sheet and patents information on a large sample of Italian manufacturing firms, this study adopts econometric analysis to examine whether green innovation is affected by extreme events. Our findings indicate that both disruptive and less disruptive climate disasters can hinder firms’ green innovation in both the short and medium terms. Moreover, industry heterogeneity emerges, with firms belonging to low-tech sectors more affected than those operating in high-tech sectors. Therefore, our evidence highlights the critical need for sector-specific adaptation plans that include measures to protect and enhance the innovative capacity of firms, particularly in less technologically advanced sectors. Such plans should be aligned with tailored and long-run industrial policies to address the challenges posed by climate stressors.