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    The ESG-Innovation Disconnect: Evidence from Green Patenting
    05 Jan 2021Working Paper Summaries

    The ESG-Innovation Disconnect: Evidence from Green Patenting

    by Lauren Cohen, Umit G. Gurun, and Quoc H. Nguyen
    Energy-producing firms are more likely to produce “blockbuster” green patents than other firms. Yet energy firms are excluded from many environmental, social, and governance (ESG) funds, and are the targets of divestiture campaigns whose stated aims often include green energy innovation.
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    Author Abstract

    No firm or sector of the global economy is untouched by innovation. In equilibrium, innovators will flock to (and innovation will occur where) the returns to innovative capital are the highest. In this paper, we document a strong empirical pattern in green patent production. Specifically, we find that oil, gas, and energy producing firms—firms with lower Environmental, Social, and Governance (ESG) scores, and who are often explicitly excluded from ESG funds’ investment universe—are key innovators in the United States’ green patent landscape. These energy producers produce more, and significantly higher quality, green innovation. Our findings raise important questions as to whether the current exclusions of many ESG-focused policies—along with the increasing incidence of explicit divestiture campaigns—are optimal, or whether reward-based incentives would lead to more efficient innovative outcomes.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: October 2020
    • HBS Working Paper Number: NBER Working Paper Series, No. 27990
    • Faculty Unit(s): Finance
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    Lauren H. Cohen
    Lauren H. Cohen
    L.E. Simmons Professor of Business Administration
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