Do ESG ratings promote green innovation inside the European Union?

Abstract

The research provides a detailed analysis of environmental, social and governance (ESG) factors in the context of EU Member States. The impact of ESG metrics is explored, ranging up from their roots conceptualized with Nobel laureate Elinor Ostrom through to their formal introduction in the United Nations Global Compact Initiative report. The study, establishes the role of ESG ratings in driving long-term economic prosperity and societal well-being, highlighting their influence on investor decisions and risk management strategies.

Afterwards, the paper investigates the growing importance of green innovation (GI), delineating its diverse nature and its central role in enhancing market competitiveness and environmental sustainability. While exploring diverse facets of GI, from eco-innovation to sustainable innovation, it addresses barriers to adoption and outlines a complete cycle for promoting green innovation. Besides, the intersection of agency theory, stakeholder theory and institutional theory in promoting sustainability and green innovation is examined, highlighting the roles of governments, institutions and stakeholders in shaping policy and organisational responses.

A significant contribution of the thesis lies in the empirical analysis of the relationship between ESG ratings and green patenting in EU Member States. Through regression analysis and robustness tests, the thesis establishes a positive correlation between higher ESG ratings and increased green patenting activity, particularly driven by social factors. These results underline the importance of addressing countries disparities and promoting sustainable practices to foster innovation and improve the EU's overall ESG performance.