Does it pay to invest in environmental sustainability? Green innovation and costs of production

Abstract

Green investment is a solution for addressing environmental issues. Besides mitigating pollution, can such investment lead to other financial benefits? In response to this research question, the objective of the current analysis is to reveal the impact of going green on the cost of production (COP) for enterprises. To achieve this aim, we conduct an empirical analysis using 10 years of data (2010–2019) from non-financial sector enterprises in BRICS (Brazil, Russia, India, China, and South Africa) economies. Due to the existence of endogeneity issues, we select the system GMM (Generalized Method of Moments) model as our estimation technique. The empirical results reveal that investment in green technologies has a non-linear negative and statistically significant relationship with COP. Initially, focusing on green investment increases the COP due to technology replacement and learning costs. However, after a certain level, such investment reduces the COP, implying an inverted U-shaped relationship between green investment and the cost of production. The conclusion of the study suggests that corporate managers should consistently invest in green technologies and adopt it as a long-term strategy. This study contributes to the literature by demonstrating the real-time role of green investment in reducing the COP.