How Knowledge and Innovation Capabilities Drive Environmental Innovation? Evidence From Global Firms

ABSTRACT This paper analyses the impact of knowledge and innovation capabilities on firm‐level environmental innovation in 4416 firms across 36 countries from 2013 to 2023. The findings suggest that a national output of knowledge and technology creation makes a significant contribution to environmental innovation. However, this relationship changes as the focus shifts from internal knowledge and technology creation to external knowledge and technology dissemination. While the national knowledge and technology impact output also enhances innovation to a lesser degree, the diffusion of knowledge and technology does not uniformly improve corporate environmental innovation. We suggest that this relationship suggests the existence of a rebound effect‐like character, indicating that firms should not assume a linear or uniformly positive relationship between increased knowledge dissemination and environmental innovation outcomes. Additionally, the relationships are income‐specific. Furthermore, firms with ongoing renewable energy projects and environmental investments achieve significantly better environmental innovation performance. Sustainability and ESG‐related executive compensation have a considerable positive impact on environmental innovation. Country‐level energy intensity acts as a significant barrier to progress, whereas firm‐level biodiversity disclosure enhances energy intensity.