Business environmental innovation and CO₂ emissions: The moderating role of environmental governance

This paper examines the effects of environmental innovation on CO₂ emissions as well as the moderating role of environmental governance in this relationship. Based on a sample of companies listed on the London Stock Exchange for the period from 2016 to 2020, the findings show that environmental innovation reduces CO₂ emissions including Scope 1 and Scope 2 CO₂ emissions. Likewise, our findings are associative of a moderating effect of environmental governance on the environmental innovation-CO₂ emissions nexus. We argue that environmental innovation along with better environmental governance leads to a reduction in CO₂ emissions. Our results hold for subsamples of firms with a strong/low environmental governance and ESG performance. Our findings offer important implications for companies and policymakers towards adopting more environmental technologies along with enhancing environmental governance to reduce CO₂ emissions.