Conventional versus green investments: advancing innovation for better financial and environmental prospects

ABSTRACT

Recently, the level of climate change has substantially been rising; relatively not much is known on ‘how’ companies alter the association between their environmental performance and financial performance within the context of specific elements of innovation: conventional innovation and green innovation. Drawing upon the stakeholder theory and the natural resource-based view of the firm, this research uses firm-level Environmental, Social, and Governance (ESG) data of 462 companies across 7 Asian countries for the period 2015–2019 and employs time fixed-effects panel regression with country and industry dummies. We find that measures of innovation (i.e. conventional innovation and green innovation) are beneficial to the firm value. However, the positive effect of conventional innovation on the firm valuation builds at the expense of the environment since it poses a significant threat to environmental quality by positively contributing to carbon emission. Whilst firms’ investments in green innovation are advantageous to either type of firm performance. Further analysis shows that firms that focus on environmental practices generate significant outcomes, e.g. improved financial performance, suggesting that firms should prioritize their green investments to enhance the innovation outcomes so as to achieve superior financial value and to attract potential environmentally proactive stakeholders.

KEYWORDS:

• Investment management
• environmental disclosure
• innovation
• ESG
• carbon emission
• corporate social responsibility

Acknowledgements

We are grateful to the Editor and the two anonymous referees of this journal for their very constructive comments and suggestions on an earlier version of this paper. We highly appreciate the support provided by Asda Chintakananda, Nattawut Jenwittayaroje and Kiattichai Kalasin from NIDA Business School, their comments and insights greatly assisted this research.

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.