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The current article investigates the relationship between environmental sustainability and financial performance in African firms, as well as the moderating effect of green innovation on this relationship. It is based on a data mining game grounded on an African setting that includes Thomson Reuters environmental, social, and corporate governance (ESG) ratings for an average of 87 businesses throughout the period from 2010 to 2021. To do so, we have applied an instrumental variable quantile regression approach for non-additive fixed-effects panel data, which controls for potential endogeneity bias and the heterogeneity variable. In fact, the results indicate that the effect of environmental sustainability on financial performance appears to be heterogeneous; more specifically, environmental performance has both a positive and negative effect on the financial performance of the best/worst-performing firms. Furthermore, there is a positive correlation between environmental performance and financial performance in the presence of environmental innovation. These findings suggest that the potential economic channels of this relationship include cost reduction, reputation enhancement, and the stimulation of innovation, all of which strengthen competitive advantage. Thus, this study provides empirical evidence that green innovation can play a crucial role in the development of corporate environmental strategies in an African context.
Ayadi et al. (Tue,) studied this question.