Predicting the Effect of Environment, Social and Governance Practices on Green Innovation: An Artificial Neural Network Approach

Abstract

Few studies have been conducted to investigate whether the Environment, Social and Governance (ESG) practices could influence green innovation in small and medium enterprises (SMEs). Therefore, the purpose of this study is to predict the effect of Environment, Social, and Governance (ESG) practices on green innovation in SMEs. In this study, green innovation is segmented into two dimensions which are sustainable product innovation and sustainable process innovation. The data was collected through a questionnaire from medium-level IT firms and was analyzed using the Artificial Neural Network (ANN) approach. The findings indicated the different impactful factors of ESG practices to enhance green innovation. The results indicate that social and political contribution is the most impactful factor to enhance sustainable product innovation followed by pollution & waste and emission reduction. In addition, the findings of this study shows that pollution & waste is the most impactful factor to enhance sustainable process innovation followed by anti-competitive behavior and emission reduction. This study will provide insights on ESG practices as an important consideration to enhance green innovation among business, operations especially in SMEs. The findings of this paper are useful for regulators, legislators, shareholders, creditors, and practitioners in pursuing ESG practices that will not only improve financial performance but will also enhance green innovation.