The ESG - Innovation Disconnect: Evidence from Green Patenting

The ESG - Innovation Disconnect: Evidence from Green Patenting

Lauren Cohen, Umit G. Gurun, Quoc Nguyen

Series number :

Serial Number: 

Date posted :

May 19 2021

Last revised :

May 19 2021
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  • ESG investment • 
  • green patents • 
  • innovation • 
  • energy sector • 
  • sustainable investing • 
  • ESG ratings • 
  • Fund flows.

No firm or sector of the global economy is untouched by innovation. In equilibrium, innovators will flock to (and innovation will occur where) the returns to innovative capital are the highest. In this paper, we document a strong empirical pattern in green patent production.

Specifically, we find that oil, gas, and energy-producing firms - firms with lower Environmental, Social, and Governance (ESG) scores, and who are often explicitly excluded from ESG funds’ investment universe – are key innovators in the United States’ green patent landscape. These energy producers produce more, and significantly higher quality, green innovation. Our findings raise important questions as to whether the current exclusions of many ESG-focused policies – along with the increasing incidence of explicit divestiture campaigns - are optimal, or whether reward-based incentives would lead to more efficient innovative outcomes.


Real name:
Lauren Cohen
Real name:
Umit G. Gurun
Real name:
Quoc Nguyen