Abstract This study analyzes how organizational emotional climates and human rights policies support social and environmental innovation in U.S. companies. We show that emotions are strategic assets with quantitative innovation returns using 2,657 firm-year observations (2016–2023). Positive emotional surroundings foster intrinsic drive and psychological safety, promoting innovation, according to our findings. More clearly, emotional tensions paradoxically boost innovation performance by compensatory mechanisms: organizations with scandals address legitimacy issues and strategically invest in innovation to regain credibility. This shows that tensions can be adaptive resources when controlled, expanding resource-based perspective frameworks. Human rights policies are meta-resources that conditionally change the emotional environment, increasing tension-driven creativity and decreasing rewards in supportive contexts. These results help entrepreneurial leaders use emotional dynamics to achieve sustained innovation in high-uncertainty situations by fusing firm-level resource perspectives with micro-level affective event theory.
Phung et al. (Tue,) studied this question.