The value relevance of environmental innovation: Evidence from European Union context

The 2030 Agenda for Sustainable Development has encouraged firms to develop innovations in order to reduce their impact on environment. Based on a sample of 492 non-financial listed firms in European Union, we examine the value relevance of environmental innovation over the 2016-2021 period. Results show an inverted U-shaped association suggesting that environmental innovation increases market value until a certain threshold. We also document that this optimum level is lower for smaller firms compared to larger firms and for firms from carbonintensive industries compared to firms from low-carbon-intensive industries. Our study adds to the growing body of literature on environmental innovation, showing theoretical and empirical support for its beneficial role on market-based performance. It further provides practical implications for managers and investors.