Climate Policy Uncertainty and Corporate Green Investment: Evidence from Energy-Intensive Industries in Emerging Markets

Climate Policy Uncertainty (CPU) presents a critical macroeconomic and structural friction to corporate capital allocation, particularly within energy-intensive industrial sectors across emerging market economies (EMEs). This study investigates the empirical relationship between macro-level climate policy volatility and corporate allocation of capital toward decarbonization, energy efficiency, and clean technology deployment (GreenCapEx). Utilizing an unbalanced panel dataset of 1,250 listed firms across five energy-intensive sectors—metals and mining, cement manufacturing, chemical processing, pulp and paper, and thermal power utilities—in 12 emerging markets from 2010 to 2020 (13,750 firm-year observations), we employ dynamic panel System Generalized Method of Moments (GMM) and firm fixed-effects specifications to resolve endogeneity, measurement error, and investment persistence. We establish that elevated CPU exerts a statistically and economically significant dampening effect on corporate green capital expenditures (β = -0.142, p < 0.01). This negative elasticity is intensified in firms characterized by elevated financial leverage and constrained operational liquidity, confirming real options predictions regarding the option value of waiting under sunk-cost irreversibility. However, internal corporate governance quality, state ownership, and structured enterprise risk management architectures mitigate this negative drag. To ground our empirical analysis in decision-making frameworks, we integrate enterprise risk management (ERM) and strategic technology adoption frameworks from foundational literature. The empirical results demonstrate that policy predictability, rather than regulatory stringency alone, serves as the primary catalyst for mobilizing private capital toward sustainable transition in emerging markets.