The power trio: leveraging ESG and R&D for breakthrough green innovation in ASX companies

Purpose This study aims to examine how environmental, social and governance scores (ESGSs) influence the relationship between research and development investment (RDI) and green innovation among Australian Securities Exchange-listed firms. Design/methodology/approach The study uses panel data from 1,097 firm-year observations covering the period 2010–2024. Ordinary least squares regression models are employed to test the relationships between RDI, ESGS and green innovation, measured by the environmental innovation score. Robustness checks include alternative model specifications, instrumental variable estimation using two-stage least squares, and exclusion of the COVID-19 period (2020–2021). Findings The results indicate that both RDI and ESGS are positively associated with green innovation. Furthermore, the interaction between RDI and ESGS is positive and significant, suggesting that firms with strong ESG performance achieve higher green innovation outcomes from their RDI. The findings support stakeholder theory and the resource-based view, highlighting the role of intangible assets such as reputational capital and stakeholder trust in enhancing sustainable innovation. Research limitations/implications The study is limited by its reliance on observational data, which constrains causal inference, and its focus on Australian firms, which may limit generalizability. Future research could adopt cross-country comparisons or dynamic panel approaches to extend these findings. Originality/value This study contributes to the literature by demonstrating the complementary role of ESG performance in enhancing the effectiveness of RDI in driving green innovation. It provides empirical evidence that sustainability and innovation are strategically aligned, offering practical insights for firms and policymakers to promote ESG integration and eco-friendly R&D initiatives.