Climate transition risk and product quality: evidence from Chinese manufacturing export firms

Climate change, as a major global challenge, is increasingly threatening sustainable development and has prompted widespread international concern. In response to its adverse effects, governments around the world have been actively advancing climate governance policies. We evaluate the adaptive adjustments in the product quality of manufacturing exports under climate transition risk. Using export product data from Chinese industrial firms, we find that climate transition risk significantly reduces export product quality in China. The adverse effect is more pronounced in the samples comprising differentiated products, high-quality products, and foreign and private firms. We confirm that climate transition risk reduces the export product quality of manufacturing firms by increasing costs, impairing profits, and hindering innovation. Our findings remain robust following a series of robustness checks, including controlling for endogeneity. The research not only contributes to the literature on climate finance and international trade but also provides valuable insights for policymakers.