Is firm-level clean or dirty innovation valued more?


One of the most pressing challenges for climate change policies today is to ensure that there is adequate economic incentive for firms to redirect innovation away from fossil fuel (‘dirty’) and towards low-carbon (‘clean’) technologies. In this paper the authors raise the question of whether there is an economic incentive for firms to pursue strategies of clean, environmentally supportive innovation as opposed to carbon-emitting dirty innovation activities.

Specifically, the authors examine how Tobin’s Q – the ratio of market value of the firm to its book value of tangible assets – is linked to ‘clean’ and ‘dirty’ innovation (proxied by publication of new patents) and innovation efficiency (number of patents per US dollar of R&D) at the firm level.

Using a global patent data set covering more than 15,000 firms across 12 countries, the authors find strong and robust evidence that the stock market recognises the value of clean innovation and innovation efficiency and accords higher valuations to those firms that engage in successful clean research and development activities.

Key points for decision-makers

  • The analysis uses a global firm-level data set covering 15,217 firms across 12 countries. The patent data are drawn from the World Patent Statistical Database (PATSTAT) maintained by the European Patent Office (EPO).
  • The authors disaggregate annual patent counts by technology, distinguishing between clean, dirty and other technologies.
  • Clean innovation relates to patented technologies in areas such as renewable energy generation, electric vehicles and energy efficiency technologies in the buildings sector, while dirty innovation relates to fossil-based energy generation and combustion engines/ground transport.
  • The publication of new patents in ‘clean’ technologies is typically associated with an economically important increase in a firm’s market valuation, while the capital market ascribes no (or a negative) market value influence to new patents in ‘dirty’ technologies.
  • The results are substantively invariant across innovation measurement, United States and European patents, model specifications, sub-samples of firms and estimators adopted.