Strategy choices in strategic risk-taking: Does climate risk matter?

This study examines how climate risks influence strategic risk-taking and corporate decision-making. Using listed manufacturing companies between 2008 and 2021 in China and combining resource-based theory and significance theory, we find that climate risk exposure significantly diminishes firms' overall strategic risk-taking by depleting financial resources. We also discover strategic adaptations in firms' investment behaviors that while physical climate risks significantly reduce capital expenditures, they do not have a similar impact on R&D expenditures. It reveals a marked increase in innovations related to climate risk alongside a decline in investments in other innovation areas. The heterogeneity analysis indicates that firms' internal risk diversification capacity and slack resources can affect the impact of climate risk on strategic risk-taking. Furthermore, climate risk will undermine long-term value by dampening strategic risk-taking. These findings indicate that it is important to integrate climate risk management into corporate strategic planning to ensure the sustainable growth of business value in the long term.