Multidimensional climate exposure and corporate green innovation

Climate exposure takes different forms, and its relationship with green innovation may be obscured by aggregate measures. Using MD&A disclosures from firms listed in Shanghai and Shenzhen between 2003 and 2023, we construct annual measures of physical, regulatory, and opportunity exposure. Regulatory and opportunity exposure are consistently associated with more green patent applications, whereas the relationship for physical exposure is weaker and varies across specifications. All three relationships are stronger in firms with higher human capital endowment (HE), consistent with the view that internal absorptive capacity conditions whether climate signals translate into innovative action. These findings help explain the mixed evidence on climate exposure and green innovation.