The Link between Climate Change Risk Perception, Strategy, and Performance: A Risk-Based Approach
Type
conference paper
Date Issued
2024
Author(s)
Abstract
While many companies engage in both climate mitigation and adaptation strategies, a clear understanding of how risk perceptions shape these strategies and their ultimate effectiveness is lacking. Our research proposes a novel risk-based model of corporate climate change strategy, arguing that companies' perceptions of climate risk determine the type of strategy they pursue, ultimately affecting environmental and financial performance. We theorize three risk-based climate strategies (risk-avoiding, risk-reducing, and risk-transferring) and hypothesize that they mediate the relationship between risk and performance. We use a rich dataset of large panel data and causal mediation analysis to test our hypotheses. We find that more stringent climate strategies mediate the climate change risk-environmental performance relationship more strongly than less stringent strategies. Further, stringent strategies improve short-term financial performance and external carbon exposure evaluations influence long-term financial performance. Our new conceptualization is based on risk and task environment, and integrated with climate mitigation and adaptation.