Green innovation takes more than good intentions
From cleaner products to circular business models, companies are racing to become more sustainable. But what does it really take to turn good intentions into successful green innovation?
Across Europe, companies are stepping up their investments in sustainability. In real terms, this means everything from low-carbon products to circular business models as businesses respond to pressure to reduce their environmental impact while remaining competitive. Driven by the European Investment Bank’s green transition initiatives, increased investor scrutiny, customer demands, and new regulations such as the EU's Corporate Sustainability Reporting Directive (CSRD), environmental performance is now a strategic priority rather than a voluntary commitment. Observing this change, we might ask whether businesses are genuinely transforming the way they innovate, or are they responding to external pressure?
According to a study by Valentina De Marchi (Esade), Gema Albort-Morant (Universitat de València), and Antonio L. Leal-Rodríguez (Loyola Andalucía University), published in the Journal of Knowledge Management, the answer may depend less on why companies pursue sustainability and more on whether they have the capabilities to innovate successfully. Their research suggests that meaningful green innovation is not simply the result of investing in research and development or complying with environmental regulations. Instead, it depends on how well organizations learn—both from within and from their external partners.
Green innovation isn't business as usual
It's a significant challenge for companies to develop sustainable products and processes. Green innovation differs from conventional innovation in that it often requires companies to solve unfamiliar technical challenges. This could be reducing emissions, improving energy efficiency, designing recyclable products, or replacing materials with more sustainable alternatives.
The automotive industry offers a good example. Designing a component that is lighter, recyclable, or manufactured with a lower carbon footprint may require expertise in materials science, engineering, manufacturing, supply chain management, and customer expectations. Much of this knowledge exists outside a company's own walls.
De Marchi and her co-authors argue that this complexity is what makes green innovation fundamentally different from other forms of innovation. Companies cannot rely solely on their existing expertise. Instead, they need to learn from external sources and successfully integrate new knowledge into their own operations. Environmental innovation is as much about learning as it is about technology.
Learning fast gives a competitive advantage
The study refers to ‘absorptive capacity’: a company's ability to identify valuable external knowledge, understand it, and turn it into practical innovations.
In the real world, some organizations are more successful than others at identifying useful ideas that can be adapted to different circumstances, and leveraged to create new products or improve existing processes. These companies aren't necessarily inventing entirely new sustainable products or processes themselves. Instead, they excel at learning from partners and applying that knowledge in new ways.
In the study, 112 Spanish automotive component manufacturers were analyzed. There was a clear relationship between absorptive capacity and successful green innovation. The authors found that companies improve green innovation when they actively acquire external knowledge and combine it with what they already know.
We are now seeing competitive advantage arise from recognizing, adapting, and applying knowledge developed elsewhere.
No company innovates alone
Few companies possess all the knowledge they need to innovate on their own. Another capability the researchers evaluated was ‘relationship learning’. Rather than developing products or processes in isolation, some organizations exchange information, develop shared understanding, and combine their knowledge with that of their suppliers, customers, and other business partners.
Innovation has become increasingly collaborative. Whether developing electric vehicles, designing recyclable packaging, or creating new renewable energy technologies, companies rarely possess all the expertise they need. Instead, innovation emerges from networks of organizations working together.
The study found that relationship learning has an even stronger impact on green innovation performance than absorptive capacity alone. And these two capabilities reinforce one another.
The authors also found that performing joint activities with suppliers and customers, sharing information, developing a common understanding, and integrating different knowledge bases help companies introduce a wider range of innovations that reduce their environmental footprint.
A good example is H&M's work to reduce emissions across its supply chain. Rather than treating Scope 3 emissions as solely the responsibility of its suppliers, the company has developed long-term partnerships with suppliers, sharing technical expertise, providing engineering support, and working together to identify practical ways to reduce the business’s carbon footprint.
Although the study focused on Spanish vehicle manufacturers, the principle is the same. H&M demonstrates both capabilities identified in the study: relationship learning through close collaboration with suppliers, and absorptive capacity by taking the knowledge generated through those partnerships and embedding it within the organization. In this way, sustainability moves from being only a compliance exercise to a source of continuous innovation.
Sustainability isn't only about technology
While many companies are taking steps to become more sustainable, some are primarily responding to stricter regulation and greater public scrutiny. Corporate sustainability can be a reaction designed to comply with legislation, reduce risk, or protect reputation. But others see sustainability goals as a driver of competitive advantage through innovation.
The study doesn’t distinguish between these motivations, nor does it attempt to identify cases of greenwashing. Instead, it offers a more practical insight. Regardless of why companies begin their sustainability journey, lasting success depends on building the capabilities needed to innovate effectively.
The European Union's Green Deal, the requirement for mandatory sustainability reporting, and efforts to tackle misleading environmental claims are paving the way for companies to move beyond symbolic commitments. Organizations that invest in learning, collaboration, and knowledge-sharing are more likely to create innovative sustainability improvements that go beyond basic compliance requirements.
Fostering a collaborative culture
The takeaway for business leaders is that to truly drive successful sustainability innovations, an organization needs to do more than invest in green tech or expand research budgets. Companies that create a culture of seeking knowledge beyond their own boundaries, encourage collaboration across supply chains, and establish organizational processes that support the rapid adoption of new ideas will not only achieve better sustainability but also gain a competitive advantage.
According to the authors of the study, managers should devote more time and resources to strengthening absorptive capacity as a strategic capability for generating new knowledge and improving green innovation performance.
Environmental challenges for businesses are not going away. A large sustainability budget alone is unlikely to be enough. The greatest competitive advantage may lie not in having all the answers, but in becoming better at finding them.