The ESG - Innovation Disconnect: Evidence from Green Patenting
80 Pages Posted: 11 Jan 2021 Last revised: 17 Jul 2023
Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)
University of Texas at Dallas
Date Written: July 16, 2023
No firm or sector of the global economy is untouched by innovation. In equilibrium, innovators will flock to (and innovation will occur where) the returns to innovative capital are the highest. In this paper, we document a strong empirical pattern in green patent production. Specifically, we find that oil, gas, and energy-producing firms – firms with lower Environmental, Social, and Governance (ESG) scores, and who are often explicitly excluded from ESG funds’ investment universe – are key innovators in the United States’ green patent landscape. These energy producers produce more, and significantly higher quality, green innovation. In many green technology spaces, they appear to be influential first-movers, not easily substitutable, and to produce ongoing foundational aspects of innovation and commercialization on which other alternative energy producers build (for instance, in carbon capture).
Keywords: ESG investment, green patents, innovation, energy sector, sustainable investing, ESG ratings, Fund flows.
JEL Classification: G11, G30, O31, O32
Suggested Citation: Suggested Citation
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