Does eco-innovation foster or hinder environmental performance? Recent evidence from Europe

ABSTRACT

This study investigates the impact of country-level eco-innovation policies on the environmental performance of European firms. As different industries are expected to produce more pollution, the study then explores the impact on the firms operating in sensitive industries. We use fixed effects panel data models to examine 1,098 firms listed in 22 European countries from 2010–2018. Our results indicate that country-level eco-innovative policies provide an encouraging environment for European firms to adopt environment-friendly practices. Eco-innovation policies help firms achieve CO₂ targets and mitigate climate change which supports the product stewardship theory. Our results also suggest that larger, more profitable, and low debt-financed European firms have better environmental performances. We also find a moderating impact of industry sensitivity and make an intriguing discovery that country-level eco-innovation policies hinder the environmental efforts of the firms operating in sensitive European industries. These results are robust to different proxies of eco-innovation and endogeneity issues due to reverse causality.

KEYWORDS:

• Eco-innovation
• environmental performance
• firm-performance
• product stewardship theory
• stakeholders’ theory
• Europe

Disclosure statement

No potential conflict of interest was reported by the authors.

Availability of data

The data that support the findings of this study are available on request from the corresponding author. The data are not publicly available due to privacy or ethical restrictions.

Notes

¹ Report of the United Nations conference on the human environment. Accessed from https://sustainabledevelopment.un.org/milestones/humanenvironment.

² Report of the World Commission on Environment and Development – Our Common Future. Accessed from https://sustainabledevelopment.un.org/milestones/wced..

³ The European Commission Environmental Assessment. Accessed from https://ec.europa.eu/environment/eia/index_en.htm.

⁴ The European Commission produces the eco-innovation index for 28 European countries; however, we restrict our dataset to 22 countries according to the availability of the dependent variable, that is, Thomson Reuters’ score for firm-level environmental performance.

⁵ https://ec.europa.eu/info/index_en.

⁶ https://www.worldbank.org/.

⁷ North American Industry Classification System (NAICS) U.S. Census Bureau.

⁸ A higher ranking is reflected by a lower number and higher country-level eco-innovation.

Additional information

Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.