Climate change is undoubtedly one of the most urgent challenges facing our society. It is widely acknowledged by the scientific community that addressing the negative effects of climate change requires drastic global reductions in greenhouse gas (GHG) emissions. 

The Intergovernmental Panel on Climate Change (IPCC) warns that a rise in temperatures of 1.5°C by 2040 will cause unavoidable increases in climate hazards resulting in severe risks to ecosystems and humans (IPCC, 2022). The issue has been reflected in political agendas. In 2015, during the United Nations (UN) Conference of Parties (COP21) in Paris, 195 countries adopted a legally binding agreement to combat climate change. The Paris Agreement set the goal of limiting global warming to well below 2°C above pre-industrial levels, with an ambition to cap it at 1.5°C. 

Accordingly, Europe has committed to reducing carbon emissions by at least 55% by 2030 (EC, 2021) and achieve climate neutrality by 2050 as part of the EU Green Deal (EC, 2019). The ever-increasing incidence of climate risks poses a major threat to business organizations, especially small and medium enterprises (SMEs), which are equipped with fewer resources and capacity to face climate challenges (Johnson and Schaltegger, 2016). 

Climate risks can have severe financial impacts on firms, undermining their performance and increasing the uncertainty surrounding their prospects (Cadez et al., 2019; Palea and Drogo, 2020; Palea and Santhia, 2022; Zhang, 2022). On the other hand, businesses have a pivotal role in fighting climate change. Companies are responsible for a large portion of GHG emissions (IPCC, 2022), and they can significantly contribute to the shift toward a low-carbon economy through the adoption of cleaner production processes and investments in green technologies (EC, 2022; Stern and Valero, 2021).

But are firms actually addressing climate risks? Are they prepared to navigate the challenges brough about by climate change? And what factors can promote their investments toward climate actions? These questions are relevant to policymakers in devising effective climate policies and to corporate managers facing the imminent threats of climate change. 

In this work, we tackle these issues by examining the level of climate action among Italian firms operating in the Piedmont region and the factors affecting their propensity to invest for reducing climate risks. Based on data collected from a survey of 2.121 companies, we categorized firms’ responses to climate risks into different clusters based on climate-related investments made and planned (“Wait-and-see”, “Planners”, “Foresighted”, and “Proactive”), and we assessed their prevalence. 

Subsequently, we examined organizational features associated with the adoption of a more proactive approach to climate risk management. In particular, we focused on the role of corporate governance mechanisms that can facilitate the integration of sustainability issues in corporate investment decisions (i.e. sustainability-oriented governance mechanisms). 

These include a firm’s legal status as a benefit corporation, the possession of sustainability-related competences, the presence of a sustainability manager, the implementation of incentive mechanisms in the form of sustainable compensations, the adoption of sustainability reporting, and participation in multistakeholder initiatives, such as the UN Global Compact and the Science-based Targets Initiative. 

The results highlight that most companies in Piedmont adopt a “wait-and-see” approach to climate-related investments, while approximately 20% of companies exhibit a “proactive” climate profile. Furthermore, we support that the implementation of sustainability-oriented governance mechanisms can foster more advanced climate strategies. 

In particular, a firm’s literacy on sustainability issues, active participation in training activities, the presence of a sustainability manager, and the preparation of a sustainability report are positively associated with climate proactiveness. 

The paper is organized as follows. Section 2 presents the literature review and conceptual framework. The sample and variable measurement are presented in Section 3. The empirical results are reported in Section 4, while Section 5 draws the conclusions and policy implications.