From polluter pays to polluter reborn: Exploring the economic and green implications of corporate carbon risk exposure

Over the last decade, mounting environmental pressures have heightened the need to address carbon risks. We assess the dual impacts of carbon risk on firm performance, composed of productivity and green transition efforts. Our results reveal that carbon risk adversely affects corporate productivity (aligned with the “polluter pays” principle) but also incentivizes firms to advance their green innovation capabilities (reflecting a “polluter reborn” dynamic). Mechanism analysis indicates that concentrated supply chains and venture capital investments mitigate these effects, while the CEO's political ties amplify them. Additionally, firm characteristics (i.e., state ownership, pollution intensity) and city-level factors (i.e., environmental regulation pilots, resource-based city status) influence the outcomes of carbon risk exposure. We contribute to the literature and offer key policy insights for effective carbon reduction strategies. • Carbon risk reduces productivity but fosters green innovation, reflecting a “polluter pays” and “polluter reborn” dynamic. • Concentrated supply chains and venture capital reduce carbon risk, while strong CEO political ties tend to increase it. • Firm ownership, pollution intensity, and city factors shape carbon risk outcomes, affecting firm responses. • Stronger environmental policies and support for green innovation are crucial for managing carbon risk impact effectively.