The impact of innovation on corporate emission

Abstract

The emergence of climate-related risk enforce companies across global to minimize their environmental impact, particularly on GHG emissions. As innovation expected as supportive tools in assisting the company toward cleaner business operation, this study investigates the impact of innovation on emission reduction, Innovation is captured through four independent variables: Environmental R&D Expenditure; Disclosure on Pollution, Resource, and Water R&D; and Disclosure on Green Capital Expenditure. To control for other potential influences on emissions, Commitment Consistency, Total Waste and Market Capitalization are included as control variables. Since the mandatory of disclosing innovation-related information remains uncommon, even in the global scale, this study utilize panel data from 358 companies across various industries between 2018 and 2024, sourced from Refinitiv Eikon. The analysis estimate 3 types of total emissions, including Scope 1, Scope 1&2, and Scope 1, 2, and 3 as the dependent variables. To highlight the difference impact of innovation, the author also conduct separated examination by dividing the sample companies into two category, namely high polluting industries and non-high polluting industries. The results under the fixed effect model reveal a nuanced and evolving influence. Green capital expenditure consistently reduces Scope 1 (direct) and Scope 1 & 2 (direct and energy-related indirect) emissions, particularly for "All Industry" and "High Polluting" groups. Conversely, environmental R&D initially correlates with increased Scope 1 emissions, suggesting complexities in its immediate impact, but loses significance for Scope 1 & 2. Consistent commitment significantly lowers Scope 1 and Scope 1 & 2 emissions for "Non-high Polluting" companies. However, the analyzed variables largely fail to explain total Scope 1, 2, and 3 (value chain) emissions. Only market capitalization shows a significant positive correlation with total emissions across "All Industry" companies, indicating larger companies may have higher overall emissions due to extensive value chains. These results emphasize that while direct green investments and strategic commitments effectively manage operational and energy-related emissions, addressing comprehensive value chain emissions requires more intricate strategies and a broader set of policies, including optimized innovation, climate commitment, waste management, and proportional regulation.