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. •Climate risk exposure significantly decreases firms' strategic risk-taking by straining financial resources.•Physical climate risks decrease capital expenditures while R&D investments remain stable.•Internal risk diversification capacity and slack resources affect the effects of climate risks on strategic risk-taking.•Climate risks can reduce long-term corporate value by suppressing strategic risk-taking.