The productivity paradox in carbon‐intensive companies: How eco‐innovation affects corporate environmental and financial performance

Abstract

AbstractEmpirical studies analyzing the relationship between strategies to reduce greenhouse gas (GHG) emissions and firms' environmental and financial performance often fail to find significant effects when firms invest in innovative green technologies. Indeed, as efficiency and productivity gains of new technologies can often be reaped only after a certain time gap, cross‐sectional studies are bound to ignore the time component, thus becoming subject to the productivity paradox. Employing an integrative approach, drawing on eco‐efficiency theory, productivity paradox, and innovation diffusion principles, this longitudinal study observes companies with high GHG emissions during and after the first two European Union Emission Trading Scheme (EU ETS) trading periods (2005–2019). It analyzes (1) the dynamics of carbon reduction practices over time, (2) the impact of GHG reduction strategies on environmental performance, (3) the positive effect of GHG‐related efficiency improvements on firm performance, while considering (4) the moderating effect of GHG emissions type on the latter relationship.