Global climate governance has increasingly exposed firms to climate transition risk (CTR), particularly as the depreciation of firms' high‑carbon assets conflicts with the low-carbon transition requirements. Developing a resilient strategy that accounts for environmental policy constraints, technological pathway choices, and market demand is a challenge for firms. Drawing on upper echelons theory and dynamic capability theory, this study uses a dataset of listed companies to examine whether firms with executives possessing environmental backgrounds (EEBs) exhibit different levels of CTR from the perspective of firm dynamic capabilities. Text mining techniques and fixed effects models are used to construct the index and estimate its effects. Results reveal that firms that appoint EEBs exhibit lower market-priced risk exposure. This relationship remains robust after endogeneity treatment and robustness tests. Additionally, when firm power concentration is low, external media attention is high, and the influence of Confucian culture is strong, EEBs are negatively associated with CTR. Mechanism analysis indicates that EEBs are better able to perceive CTR, leverage green development opportunities, and reconstruct green resources, consistent with the role of firm dynamic capabilities in explaining lower CTR. Further analysis demonstrates that a lower CTR is associated with enhanced environmental responsibility and economic performance, promoting sustainable development and increasing business value. This study documents a robust association between EEBs and CTR and advances our understanding of transition risk pricing in financial markets, providing practical insights for firms aiming to improve climate governance and promote an orderly low-carbon transition.
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