Carbon reduction initiatives, firm innovation and firm value

Albert Acheampong and Yan Wang

Economics Letters, 2025, vol. 256, issue C

Abstract: This study examines the impact of carbon reduction initiatives (CRI) on firm innovation and firm value. Using a sample of FTSE 350 non-financial firms from 2005 to 2023, we employ a novel text-mining approach to construct a CRI index and assess its relationship with firm’s R&D intensity and market valuation. Our findings reveal that firms engaged in CRI exhibit higher innovation output and enhanced firm value. Further findings reveal that carbon-intensive firms realise greater valuation benefits, whereas non-carbon-intensive firms exhibit stronger innovation-driven gains. These results remain robust to several further analysis and endogeneity tests. Our study contributes to the literature on corporate sustainability by highlighting the financial and technological implications of CRI. The findings offer practical insights for corporate managers, investors, and policymakers on the strategic advantages of integrating sustainability into corporate decision-making.

Keywords: Carbon reduction initiative; R&d; Firm innovation; Firm value (search for similar items in EconPapers)
JEL-codes: D18 G32 M14 O32 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004501

DOI: 10.1016/j.econlet.2025.112613

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