Abstract
Green innovation is needed to find solutions to the accelerating climate crisis. However, developing such green innovation is costly for firms in the short term and has uncertain and delayed pay-offs in the long run, leading many firms to limit their engagement. What triggers firms to step-up green innovation efforts remains ill-explored. Drawing on the behavioral theory of the firm, we suggest that if a firm receives more regulatory sanctions for environmental violations than its competitors (failing to meet social aspirations) or than it has in the past (failing to meet historical aspirations), this can trigger problemistic search behavior and, in turn, increase the firm’s green innovation propensity. Examining RnD-active S&P 500 firms between 2004 and 2014, we find that failing to meet social aspirations does trigger increased green innovation while failing to meet historical aspirations does not. Rather, meeting historical aspirations are associated with reduced green innovation propensity, suggesting that firms may need negative feedback to engage in green innovation. These findings identify an important antecedent of green innovation and highlight the role of regulatory enforcement of environmental violations.