Sustainability-Driven Innovation and Financial Performance: How does it pay to be green?

Abstract: Market and policy pressures increasingly demand a shift towards sustainable means of production; thereby, the inconclusive and long-standing debate between the impact of environmental efforts and economic performance at the firm level has never been so relevant. However, companies who seek to prioritize sustainability on their processes and outputs still need to focus on their financial returns. Through a panel data analysis using fixed and random effects methods, this thesis quantitatively tests the influence of a sustainability-driven innovation (SDI) strategy on accounting-based financial performance indicators in public companies between the years of 2010 and 2018. To measure the presence of this innovation typology, the number of appearances in the Dow Jones Sustainability Index is employed. Results suggest that the presence of an SDI mechanism effectively aids in the optimal exploitation of a firm’s assets into sales and works as a tool to improve operational efficiency (ATR) rather than operational profitability (ROA) or financial profitability (ROS) in industry sectors that prominently rely on their intangible and fixed assets to produce sales-boosting goods and services. This writing contributes by exposing the benefits and downturns of placing sustainability at the top of the company strategy and prove SDI as a viable alternative to transform the business dynamics.