Global ecological dependence and multinationals’ climate innovation: the role of climate risk exposure and institutional conditions

Climate change poses significant global challenges to multinational enterprises (MNEs). One crucial solution hinges on the development of new technologies to mitigate climate change or adapt to its adverse effects. However, it remains unclear what factors can effectively motivate MNEs’ development of climate innovation. Integrating the resource dependence theory and the natural resource-based view, we argue that MNEs’ strategies are shaped by their dependence on the global ecological environment for natural resources—coined here as global ecological dependence . When exposed to elevated climate risks, MNEs tend to engage in climate innovation to assuage the uncertainty associated with their global ecological dependence. This tendency is moderated by climate-related formal and informal institutions that alter the perceived benefits and costs of climate innovation: stringent regulatory demand for climate action weakens this tendency as it increases firm costs and can divert resources, whereas heightened societal demand enhances this tendency as it can increase MNEs’ perception of the benefits of climate innovation. We find evidence for our hypotheses in a panel of MNEs listed in the United States from 1995 to 2017. Our study contributes to resource dependence theory and extends our understanding of climate innovation as a viable solution to climate change.