The pursuit of green innovation strategies by firms is likely to boost their competitiveness as it allows them to enter new markets and build up ‘green’ capabilities, however this does not translate to increased turnover or performance, according to new research by Durham University Business School. 

The research, conducted by Dr. Bettina Becker, suggests that current market incentives may not be sufficient to entice firms to adopt important green innovation strategies.

Dr. Becker, an Associate Professor in Strategy and Innovation at Durham University Business School, wanted to understand the effects that adopting green innovation strategies had on a firm’s innovation success and performance. 

Her study analysed a dataset of over 12,000 Spanish firms between 2008-2016, showcasing the green innovation strategies that firms implemented over the nine-year period, and matching these to changes in their performance – measured as turnover growth, employment growth, and labour productivity.

The results show that the pursuit of a green innovation strategy increases a firm’s innovation success compared with innovating companies that do not adopt a green innovation strategy. Dr. Becker states that the associated increase in turnover due to the launch of new-to-market products amounts to 3-4%.

However, the study showed that adopting green innovation strategies does not always translate into a positive impact on firm performance in terms of turnover growth, employment growth, or labour productivity. This, Dr Becker states, suggests that market incentives may not be sufficient to entice firms to adopt important green innovation strategies.

Dr Becker states that policymakers must look to fill this gap in terms of business incentives for investing in green innovation strategies, given it is vital for the environment and society that businesses do so.

“Day by day, it is becoming drastically more important for us to innovate new green solutions.”, says Dr Becker.“Climate change is already having a huge impact and will continue to become more profound unless we are able to tackle rising temperatures and changing ecosystems through new innovation. Businesses are most equipped to create new solutions to these problems, but currently, as this research shows there are few financial incentives to do so. Policymakers need to step in and create these missing financial incentives”.

Environmental and innovation policy intervention is critical to create the market incentives needed to encourage firms to invest in green innovation strategies. Specific policies also should offer direct stimulating support to enable successful green innovation, states Dr Becker. Firms developing green product innovation strategies may, for instance, be supported by the procurement of new green products by governments to stimulate demand for new green products.

Dr Becker suggests that rather than expecting that markets will provide ‘win-win’ situations, green industrial policy needs to shape markets and incentivise and support firms to increase their green production capabilities. This way, firms will be able to approach their full potential to capture green growth opportunities for the realisation of a sustainable economy.