The Impact of Green Innovation on Firms' Financial Performance: A Literature Review

HRMARS - Green innovation is increasingly viewed as a way for firms to address environmental challenges while maintaining competitiveness. Yet, whether green innovation improves financial performance remains debated. This review synthesizes the major theoretical perspectives, empirical findings, and underlying mechanisms linking green innovation to financial performance. The existing evidence generally points to a positive relationship, although the financial benefits of green innovation are neither immediate nor universal. Their magnitude depends on the type and quality of green innovation and is shaped by organizational capabilities, governance arrangements, and contextual conditions. The literature further suggests that green innovation creates financial value through multiple pathways, including efficiency improvement, reputation enhancement, capability building, and effective value capture. By bringing together these fragmented findings, this review provides a more nuanced understanding of how and under what conditions green innovation contributes to firm performance and identifies opportunities for future research.