Revisiting the sustainability-innovation nexus: Lessons learned from the US

Abstract

The relationship between innovation and corporate sustainability constitutes a long-lasting debate among policymakers and researchers. Despite the significant contributions to this field, extant literature does not provide clear answers. This can be attributed to the fact that prior studies do not incorporate the various aspects of innovation to measure their impact on sustainability performance. This study aims to cover this gap in the emerging literature by using a unique micro-level panel dataset consisting of a large number of firms scattered across the US states over the period 2007-2016. Our findings reveal that the basic mechanism for achieving corporate sustainability is through the innovation channel. We also argue that the quantity and value of innovation enhance the sustainability level, whereas these effects are strengthened in times of recession (global financial crisis). The empirical results survive robustness checks under alternative innovation measures and different econometric techniques dealing with endogeneity and reverse causality. Lastly, policy implications relating to the nature of corporate sustainability performance are also provided