Curvilinear Relationship between Corporate Innovation and Environmental Sustainability

Jegoo Lee,Sang-Joon Kim

doi:10.3390/su9071267

Abstract

This paper proposes and tests the impacts of firms’ innovation activities, such as patents, on their involvement in environmental sustainability, such as environmental performance. Combining resource allocation and eco-innovation perspectives assuming constant levels of trade-off costs, this study proposes diminishing trade-off costs between corporate innovation and environmental sustainability. Specifically, this research hypothesizes a U-shaped relationship, suggesting that a firm will suffer trade-off costs between innovation and environment-oriented activities up to a certain level, and that once a firm accumulates an adequate level of innovation, it may reduce trade-off costs, caring more for environmental issues. A proposed hypothesis is supported by empirical testing of a sample of 11,657 firm-year observations with 1564 firms, spanning from 1991 to 2010. We also found that corporate patenting activities are relevant to undesirable impacts on environmental performance overall, instead of satisfying outcomes. We suggest that firms and managers should care for environmental sustainability issues once they accumulate an adequate level of innovation assets through patenting activities.

Highlights

Do firms’ innovation activities affect their environmental sustainability? Researchers propose that corporate social responsibility (CSR) is highly correlated with innovation such as intangible assets and research and development or R&D activities [1,2,3]
In this study, building on both the resource allocation and eco-innovation frames, we examined the relationships between corporate patents and environmental performance
We proposed a latent mechanism of the trade-off costs between corporate innovation and environmental sustainability

Summary

Introduction

Do firms’ innovation activities affect their environmental sustainability? Researchers propose that corporate social responsibility (CSR) is highly correlated with innovation such as intangible assets and research and development or R&D activities [1,2,3]. Do firms’ innovation activities affect their environmental sustainability? There has been little research into the relationship between corporate innovation, CSR and environmental sustainability. In order to fill this gap, this paper proposes and tests the impacts of firms’ innovation activities, such as patenting, on their involvement in environmental sustainability, such as environmental performance. Regarding this issue, two relevant but contradictory theoretical frameworks are considered: From the resource allocation approach [4,5,6,7], assuming budget constraints in each firm, corporations must choose either innovation or environmental sustainability. The more innovative a firm is, the more environmentally friendly it will be

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Conclusion