Yale School of Forestry & Environmental Studies
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Will green innovation sharpen your horn in the market?

As the ecological challenges continue to arise, environmental innovations may be the key to a firm’s market-share expansion and flexibility against economic downturn.

Companies play a major role in the production and consumption cycle. Especially in the production cycle, environmental capacity limit have surfaced as business challenges. Many companies are addressing the challenges in form of green innovations; new environment-friendly products and process development aimed to protect nature and reduce resource. The relationship between green innovations that respond to the environmental challenges we face and business performance has long been considered to be fruitful in that innovations offer competitive advantage. Research that has already been conducted support that environmental innovations are a source of competitive advantage. However, many find the research results still to be obscure as it is impossible to trace exact variables that contribute to competitive advantage other than adoption of environmental innovations.
In a paper entitled “Environmental Innovations as a Source of Competitive Advantage or Vice Versa?” published in Business Strategy and the Environment journal, Helena Forsman from Winchester University investigated a little deeper using empirical data on more than 100 firms starting from 2001 to 2010. From a heap of data, she came up with the correlation between business performance and green innovations after looking at firm’s different sizes, age, innovation adoption phases, and the types of innovation in accordance with sales growth and operating earnings.
The tendency of the result is very interesting. The sales growth of green innovators was always high when innovation was newly introduced to the market. In same regards, the sales growth itself was always higher than non-green innovators. This shows that innovation’s influence on market share is positively correlated with a company’s pursuit of green innovation. However, the competitive strength in sales growth did not necessarily lead to improved performance in terms of return on investment and operating earnings. This suggests that although green innovations help companies grow in the market share, it does not essentially lead to improved earnings – at worst, it may lead to relative efficiency disadvantage. In addition, the results indicate that the green innovator companies showed greater flexibility to the market economic turndown. To sum up, companies which adopt environmentally friendly innovations will generally result in growth and resilience but not with improved profits.
Gaining competitive advantage from green product or process innovations is not easy. Nevertheless, an accumulation of these innovations will lead to sustainable strength in business. Building on the research, firms can be confident that green innovations will lead to certain distinctive advantages in economic and managerial terms when their efficiency concerns are managed. For government bodies and policy makers, the result can be a cornerstone to make aware of positive outcomes and following support the local firm’s attempt to excel through green innovations. 
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Original Paper:
Helena Forsman. “Environmental Innovations as a Source of Competitive Advantage or Vice Versa?” Business Strategy and the Environment. 22 (2013), 306-320.

doi: 10.1002/bse.1742/pdf


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