N°24-18: Green Innovations—Do Patents Pay Off for the Environment or for the Investors?

We examine whether a company’s green and high–quality innovative strength is related to its environmental impact and what the implications are for its financial performance. By analyzing WIPO patent data and MSCI ESG data, we reveal a notable positive and statistically significant impact of possessing more green patents on a company’s carbon emissions score. Further, we find that the patent related increase in carbon emissions score is driven by the high–quality green patents. Our analysis validates the positive influence of green and high–quality innovation strength on both the E and ESG scores. Despite the positive impact on the environment, investors do not need to sacrifice returns. Investment strategies which invest in companies within the top decile of green patents or green patents ratio do not perform worse than the market.