The importance of digitalization in powering environmental innovation performance of European countries

Abstract

We empirically examine the influences of the digital business and digital public services on environmental innovation (EI) performance in the European region during the 2011-2019 period. We use four diverse measures to capture the performance of EIs of 24 European countries, including the percentage of enterprises implementing EI investment (% of surveyed firms); the percentage of enterprises implementing EI activities (e.g., implementation of resource efficiency actions, sustainable products, or ISO 14001 certificates) measured, a number of enterprises having new ISO 14001 registration and a number of EI related patents. There are four measures of e-Commerce, including online selling, e-Commerce sales, e-Commerce web sales, e-Commerce turnover, and two measures of e-Business, including CRM usage and cloud usage. Digital public service performance is captured by three indicators, including user centricity, business mobility and key enabler. Our study provides the theoretical framework to explain the link between digitalization and environmental performance. The nexus between digitalization and environmental innovations is empirically analyzed by using the panel corrected standard error (PCSE) model and the feasible generalized least squares (FGLS) model for the panel data featuring the cross-sectional dependency. Our estimation results highlight the importance of digital businesses, including e-commerce sales, e-commerce turnover, e-business (including CRP and cloud usage), in improving the EI investments, EI activities, EI related patents, and the number of enterprises with new ISO 14001 registration during the 2011-2019 period in the European region. Digital public services are less crucial in promoting EI performance as compared to digital businesses as these variables are not statistically significant in some cases. We also provide empirical evidence on the mechanism to explain the improvements in EI. Digitalization appears to have favorable impacts on EI investments of firms and government's financial support, and the public's awareness regarding the importance of EI.