Gears and leaves intertwined, representing green innovation impacting a rising financial graph.

Green Innovation: Is it really worth the investment?

Jordan Keane in Business & Economy August 2025 • 4 min read.

"Discover how green initiatives affect firm productivity, revealing surprising insights into the economic impact of environmental efforts. Are eco-friendly choices always the best for your business?"

In today's world, companies are under increasing pressure to be environmentally responsible. Investing in "green innovation" seems like the right thing to do, but many business leaders wonder: Does it actually help the bottom line? Or does it take away resources from other important areas?

A recent study dives deep into this question, examining how investments in green initiatives affect a company's financial performance. Using a well-established model for analysing research and development (R&D), the researchers looked at both green and non-green innovation to see which one truly drives productivity.

The findings might surprise you. The impact of green innovation isn't always straightforward, and its effectiveness can depend greatly on the type of company and its existing practices. This article breaks down the key insights, offering a clear understanding of when and how green innovation can truly pay off.

Does Going Green Actually Boost Productivity? Understanding the CDM Model

Gears and leaves intertwined, representing green innovation impacting a rising financial graph.

To understand the true impact of green innovation, the study used the Crepon, Duguet, and Mairesse (CDM) framework. This model helps researchers see how a company's investment in R&D turns into patents and, ultimately, affects its overall productivity. It's like tracing the path from planting a seed to harvesting the crop.

By using this model, the study was able to address a common challenge: figuring out whether the relationship between R&D and productivity is a direct cause-and-effect. The CDM framework helps eliminate other factors that might be influencing the results, giving a clearer picture of the true impact.

Here's how the CDM model works:

First, it looks at a company's decision to invest in R&D.
Second, it examines how that investment turns into patents.
Finally, it assesses how those patents affect the company's productivity.

Extending this classical model, the research contrasted the economic effects of green versus non-green innovations. By analyzing data from Chinese firms, the study revealed how environmental regulations, market conditions, and ownership structures influence R&D input and outcomes.

Making Green Investments Work for You

The key takeaway? Green innovation isn't a one-size-fits-all solution. Its success depends on a company's specific situation, including its pollution levels, existing productivity, and the industry in which it operates. By understanding these nuances, business leaders can make informed decisions about where to allocate their resources, ensuring that their green initiatives not only benefit the planet but also boost their bottom line.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

Everything You Need To Know

What is the primary question the research investigates regarding green innovation?

The main question explored is whether investments in green innovation actually improve a company's financial performance. The study specifically examines if these eco-friendly initiatives truly benefit the bottom line or if they divert resources from other crucial areas of the business.

How did the study assess the impact of green innovation on firm productivity?

The study employed the Crepon, Duguet, and Mairesse (CDM) framework to assess the impact. This model is used to analyze how a company's investment in research and development (R&D) translates into patents and, ultimately, affects overall productivity. The CDM framework helps researchers determine the direct cause-and-effect relationship between R&D and productivity, eliminating other influencing factors to provide a clearer picture.

What are the steps involved in the CDM model used in the research?

The CDM model operates through a series of steps. Firstly, it examines a company's decision to invest in R&D. Secondly, it assesses how that investment results in patents. Lastly, the model evaluates how those patents influence the company's overall productivity. By extending this framework, the research contrasted the economic effects of green versus non-green innovations.

Does green innovation always lead to increased productivity, and what factors influence its success?

No, the research indicates that green innovation's success is not guaranteed and is not a one-size-fits-all solution. Its effectiveness depends on several factors specific to the company, including its current pollution levels, existing productivity, and the industry it operates within. Also, the impact of green innovation isn't always straightforward.

How can business leaders use the insights from this research to make informed decisions about green initiatives?

Business leaders can use the insights to make informed decisions about allocating resources by understanding that green innovation's success is context-dependent. They need to consider their specific situation, including pollution levels, current productivity, and industry dynamics. By doing so, they can ensure that their green initiatives benefit both the environment and the company's financial performance, aligning environmental goals with economic success.