Does ESG performance bring to enterprises’ green innovation? Yes, evidence from 118 countries

Abstract

Research background: The sustainable development and innovation economics theory and related literature place a lot of emphasis on the relationship between environment, society, and governance (ESG) and green innovation. Purpose of the article: The purpose of this paper is to understand what the factors are that influence green innovation and why there is a big disparity in green innovation capabilities between nations. In addition, this paper aims to investigate the impact of ESG performance of green innovation by using unbalanced panel data covering 118 sample countries during the period of 1999–2019. Methods: Panel fixed effect model; Instrumental variable (IV) method; First-differencing (FD) method; Kinky least-squares (KLS) approach. Findings & value added: ESG performance provides evidence for its positive and significant impact on such innovation. Among the ESG factors, governance seems to have the most important influence on green innovation. Moreover, the positive influence of ESG performance is more evident in higher income and wealthy nations. Furthermore, we also conclude that ESG performance can affect green innovation through FDI, human capital, financial development and trade openness. These conclusions hold up after a number of robustness tests and taking into account any potential endogenous issues. Overall, policymakers should pay close attention to the findings.