Corporate Environmental Innovation and Environmental Decoupling: International Evidence

Abstract

This study investigates whether environmental innovation reduces environmental decoupling, defined as the mismatch between a company's environmental disclosures and its actual environmental performance. Drawing on legitimacy theory, we argue that environmental innovation represents a substantive organizational response that reduces companies' reliance on symbolic environmental communication and promotes alignment between reported claims and actual practices. Using a sample of 10,463 firm-year observations of companies listed in the Bloomberg Global Large and Mid-Cap Index from 2010 to 2020, we find that environmental innovation is negatively and statistically associated with environmental decoupling. This result remains robust across multiple model specifications, including two-stage least squares and propensity score matching approaches. The study offers generalizable insights into the role of environmental innovation in enhancing the credibility of sustainability reporting and provides practical implications for managers, investors, and policymakers seeking to mitigate environmental misinformation and improve the integrity of disclosure.