The effect of innovation on environmental, social and governance (ESG) practices

Abstract

Purpose: This paper aims to investigate if and to what extent environmental, social and governance (ESG) practices are influenced by innovation, measured by investment in research and development (R&D) and the number of patents developed by companies. Design/methodology/approach: To test this hypothesis, the authors estimated a regression model for the panel data considering a time horizon of eight years. The analysis was conducted on a sample of listed firms operating in the industrial sector in France, Germany, Italy, Spain, the UK and the USA. Findings: The empirical analysis shows that there is a positive and significant relationship between ESG practices and innovation. Companies investing more in R&D and patents have better ESG performance. Originality/value: This study contributes to the existing literature by improving the understanding of the importance of innovation in improving ESG practices for firms in the industrial sector. Furthermore, it provides empirical evidence of the ability of innovation to be a valuable tool for sustainable industry development through R&D investment and patent development.