N°23-21: Are Green Innovations Priced? Evidence Beyond Patents

This paper introduces a novel firm-level green innovation measure utilizing ClimateBERT and GPT-3 language models, capturing a broader range of innovative activities beyond green patents. Green innovating firms, including many from carbon-intensive sectors, experienced lower expected returns than their less innovative industry peers. These firms exhibit reduced carbon emissions and fewer climate incidents. They demonstrate a notable value increase in response to more stringent environmental regulations and recent heightened attention to green innovation. These effects extend to green nonpatenting firms that adopt external green technologies and nonpatentable sustainable strategies. Climate policies effectively incentivize green innovation but predominantly among financially unconstrained companies.