Abstract
There is uncertainty in recent research regarding the relationship between business innovation and environmental performance. Employing matched panel data for 589 publicly listed companies from 2006 to 2014, this study investigated the relationship between innovation and CO2 emission reduction for companies in Japan. The mechanisms driving emissions reduction were also explored using multiple regression models. Results showed that investment in innovation increased labor productivity which in turn reduced energy intensity and carbon emission reductions. A heterogeneous analysis showed that the impact of research and development investment was the most pronounced for well-established businesses. Furthermore, the manufacturing sector was found to enjoy more environmental benefits from innovation due to its high energy intensity. Findings of this study highlight the importance of investment in innovation for its environmental and sustainability benefits.
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