Riding the wave of climate risk: how firms’ attention to climate change-related opportunities responds to economic and climate policy uncertainty

Purpose Drawing on theoretically grounded hypotheses, this paper aims to compares the linear and asymmetric impact of Economic Policy Uncertainty (EPU) and Climate Policy Uncertainty (CPU) on firms’ attention to climate change-related opportunities. Design/methodology/approach The authors focus on a sample of German-listed firms observed from the first quarter of 2010 to the second quarter of 2022. The system GMM is used with standard error estimates robust to heteroskedasticity and autocorrelation within panels. The authors run robustness tests to explore issues that have been insufficiently addressed by the literature. Findings The linear estimation reveals that policy uncertainty exerts a positive effect on firms’ attention to climate opportunities, with CPU exerting stronger impact than EPU. The asymmetric estimators show that firms tend to increase their attention to climate-related opportunities when EPU rises, and are more likely to reduce this attention when CPU decreases. The attention of firms, operating in the manufacturing industry, to climate change-related opportunities is found to be more sensitive to uncertainty than that of firms in other sectors. The positive impacts of EPU and CPU are endogenous to physical and transitional climate risk. Research limitations/implications The results imply that market pressure should remain a key driver of corporate innovation in green technologies and act as a substitute during periods of lower economic policy uncertainty, to sustain firms’ attention to climate issues. Stronger safeguards should be implemented during times of decreased uncertainty, particularly those linked to pro-environmental regulations, legislation and the energy transition. Originality/value This paper explores explicitly the impact of uncertainty on firms’ engagement with low-carbon strategies rather on broader environmental metrics. It introduces a dual-uncertainty framework by using both Economic Policy Uncertainty (EPU) and Climate Policy Uncertainty (CPU) indices. It investigates the asymmetric effects of uncertainty which have not yet been explored in the context of firms’ commitment to climate change.