The effect of environmental innovation on corporate sustainability of companies in South Africa

Abstract

Now faced with climate change concerns and resource scarcity across various sectors, companies must possess the ability to implement sustainable practices and adapt to attain competitiveness by optimising the utilisation of their capabilities and limited resources, and adjust their operations to gain legitimacy and align with societal expectations in which their businesses operate in (Leal-Rodríguez et al., 2018). However, embracing sustainability requires significant investments in innovation, research and development (Dicuonzo et al., 2022; Fernandez et al., 2021; Buallay, 2019). Thus, companies typically exercise caution when considering investments in environmental sustainability initiatives due to concerns that such investments could potentially increase operational costs and undermine their competitiveness (Khanra et al., 2022). Stucki (2019) suggested that if environmental innovation leads to improved firm performance and sustainability, companies tend to invest in it. The study's main objective was to understand how environmental innovation influences corporate sustainability of companies in South Africa. The secondary goals were to understand how environmental innovation affects the individual components of sustainability i.e., environmental, social, and governance aspects. The theoretical approach explored by the study was the resource-based view, dynamic capabilities, environmental innovation, and the sustainability concept. To test the study hypotheses, the study employed a positivism approach that utilised structured methods to enable generalisation and replication. Secondary data was collected from the Refinitiv Database. The study employed a longitudinal design, collecting panel data spanning from 2013 to 2022. The sample was obtained by using non-probability purposive sampling where a sample of 39 public companies listed on the JSE were chosen using both judgement and convenience sampling, with resulted to 390 observations. The generalised least squares regression model was conducted to determine how environmental innovation affects corporate sustainability of firms in South Africa. The study revealed that there is a significant positive relationship between environmental innovation and corporate sustainability of companies in South Africa. The study also found that environmental innovation only has a significant positive relationship with the environmental aspect of corporate sustainability of companies. There was no significant relationship found between environmental innovation and the other two elements of corporate sustainability of companies.