Heterogeneous Paths to Green Investment: how much do firms’ economic conditions matter in their decision to invest in environmental innovation?

The green transition requires firms to undertake investments whose costs are immediate and whose returns are uncertain. Although stronger prior economic performance may ease resource constraints, weaker performance may also induce firms to seek cost reductions and resource efficiency. We examine these competing mechanisms using an original dataset of 1,537 firms in Emilia-Romagna. We combine survey data on environmental investments undertaken in 2019–2023 with balance-sheet measures of profitability, productivity and growth in 2015–2018. The empirical strategy first applies cluster analysis to identify distinct economic performance- environmental investment profiles and then estimates pairwise logit models comparing investors and non-investors with broadly comparable prior economic conditions. Four profiles emerge. Profitability, productivity and growth do not translate into a common investment pattern: some firms invest without a clear prior economic advantage, while firms with stronger profitability and growth may remain weakly engaged. Across the pairwise comparisons, regulatory knowledge, external consulting, environmental subsidies and process innovation are systematically associated with membership in the investor profiles. The results show that prior economic performance does not map onto a single green investment trajectory. Rather, firms follow heterogeneous paths shaped by the interaction of economic conditions, internal capabilities, access to knowledge and policy support.