Does country-level eco-innovation help reduce corporate CO2 emissions? Evidence from Europe

Abstract

Climate change and CO2 emissions intertwine corporations and society in current political, social, environmental, and economic debates, specifically in Europe. The climate action plan formulated by the European Commission aims to achieve net zero emissions through eco-innovation by 2050. The objective of this study is to investigate the impact of the European eco-innovation index on CO2 emissions produced by European firms. Using a dataset of 735 firms from 17 European countries listed during 2010–2018, we found a significant negative association between the country-level eco-innovation index and CO2 emissions directly produced by the European firms. We also found a significant negative association between the eco-innovation index and indirect CO2 emissions produced by the value chain of these firms. The results provide evidence that via eco-innovation, supportive steps taken by European countries provide a conducive environment for the European firms to adopt eco-innovative strategies that significantly reduce their direct and indirect CO2 emissions per dollar of their corporate assets and make their value chains eco-friendly. The results also reveal that financial development brings in some environmental monitoring that cultivates a supportive culture for the corporations to promote corporate efforts to reduce CO2 emissions.