Environment and employment: is there a prize for clean play?
- 1The study concludes that investment in green innovation represents an opportunity to tackle the problem of unemployment in Spain.
- 2Even at times of crisis, companies that include concern for the environment as a strategy and that innovate in line with this principle show an average employment level that is not only higher but also grows.
- 3At present, investments in eco-innovation are mainly assigned to complying with environmental standards, but not to the direct transformation of companies to use clean technologies through important changes in the production process (for example, favouring lower use of energies and materials).
- 4Nonetheless, voluntary adherence to eco-innovative objectives is a predictor of increases in employee numbers.
The data show that companies that have been investing in eco-innovation have generated the most employment in recent years, even during the toughest years of the recession. Regression analysis using data from the Technological Innovation Panel survey concludes that the presence of eco-innovations is associated with increases in employment levels, and that this effect is multiplied in companies situated in sectors considered more contaminant. All these results do not appear in those companies that simply do not innovate.
On the other hand companies related with clean industries enjoy a better image due to their lesser environmental impact; therefore companies that belong to more contaminant industries feel a greater need to differentiate themselves. The introduction of green technologies by these companies means that they are perceived as more sustainable. For this reason, society responds in a more positive and receptive way when green innovations are introduced by companies from highly contaminant sectors, which in turn, produces an increase in their competitive advantage in the market.
The impacts of pollution and of climate change have beome a cause for public concern. Given that these impacts are often perceived to be the result of economic activity, many businesses have taken the initiative of incorporating the reduction of their environmental impact into their corporate strategies. This study clearly demonstrates that a positive association exists between business innovation oriented towards environmental sustainability and the creation of employment. This association, furthermore, is particularly significant in the most polluting sectors and industries, traditionally considered ‘dirty’ from the environmental viewpoint, providing that eco-innovation is undertaken voluntarily.
These results suggest that, although investment in clean technology is expensive, including objectives to reduce environmental impact in business strategies is not just an opportunity to improve reputation, but also contributes to the creation of quality employment.
1. The environmental challenge for businesses
Undesired consequences resulting from human activities that affect the environment are growing at an alarming rate. The impacts of pollution and climate change are front-page news and it is assumed that they are the consequence of economic activity and of a poorly understood progress. It is for this reason that, especially in recent decades, pressure has increased on companies to include, as part of their strategy, the achievement of environmental benefits, as well as economic ones. Among the benefits worthy of mention are reduced emissions into the atmosphere, the use of materials that are recycled or recyclable, and minimising the use of polluting energies and materials.
Thus, many companies have launched initiatives that could be classed as “green” because they have a product or develop a service that does not jeopardise the environment. For the purposes of this article, the term “eco-innovative businesses” will be used to refer to those businesses that, regardless of the sector to which they belong, are making innovative efforts designed to reduce their impact on the environment.
Within these initiatives, while some companies have incorporated environmental management systems, others are acting more strategically, i.e. based on objectives, introducing economic measures that favour the development of green technologies and innovations. Their motivations may be diverse: from public scrutiny to pressure from stakeholders, and may include public incentives or regulations on emissions. According to the Eco-Innovation Laboratory (2017), some companies characterised as “climate-positive” are accepting their co-responsibility in this question, using only renewable energies in their operations, pursuing a neutral balance in carbon emissions resulting from their operations or committing to the complete recycling of the raw materials used. With these goals, they aim not only to absorb their own environmental impact, but also part of that generated by the rest of the economy. According to the same study, in economic terms companies that actively manage their contribution to climate change show, furthermore, returns on investment that are 18% higher than the rest.
- Eco-innovative efforts are also present in Spain, although perhaps not in the same way as in our peer countries. The five main areas that define eco-innovation in accordance with the European Eco-Innovation Index (graph 1) are as follows:
- Inputs (spending on staff in R&D, value of environmental investments, etc.)
- Activities (environmental certificates achieved thanks to the launching of certain activities, percentages of companies that have introduced an innovation with positive environmental results)
- Outputs (number of patents, academic publications)
- Resource efficiency outcomes (material, water and energy productivity)
- Socioeconomic outcomes (environmental exports, employment in eco-industries and circular economy)
This index aims to measure all the aspects brought together by a productive activity geared towards minimising impact on the environment. Spain is in position 14, a little below the European average and a not inconsiderable distance behind the leaders (Germany, Finland and Luxembourg). If we compare this information with that obtained in 2015, Spain’s position has worsened, since in that year it stood at position 11, above the EU average.
In addition to their direct effect on the environment, eco-innovative measures may have other indirect effects. In this sense, it is particularly interesting to examine the effects of eco-innovation on employment, an area of special importance in our country. Contributing evidence to help determine the possible outcome of eco-innovation in employment is precisely the main objective of this study.
2. Employment and eco-innovation
One of the issues with most prominence in current debates on economic policy is concern with how the green transformation of companies affects economic growth and employment. Despite this, and paradoxically, we have few studies in this respect.
In this sense, the public administrations have encouraged, through the use of different instruments (public grants or decreased fiscal pressure, among other measures), the appearance of new companies and industries within a new framework, named the “environmental sector”. Within this framework, renewable energy companies would be a paradigmatic example. The new jobs created by these countries, in addition to the employment demands of industries with clean technologies, suggest that the impact of the green innovation on employment has been positive.
However, as pointed to by green innovations, and in particular those that provide clean production, reducing the demand for energy and materials from certain industries also affects employment in these sectors (Pfeiffer and Rennings, 2001). This phenomenon especially affects those workers of industries that use obsolete technologies or those whose materials are dirty (for example carbon, a material used as energy but that is highly polluting). The net effect on employment of these two major tendencies, one a creator and the other a destroyer of jobs, is uncertain, therefore more in-depth analyses are needed.
The majority of studies conducted to date have analysed the direct relationship that exists between types of eco-innovation and their effects on employment. Thus, Horbach and Rennings (2013) show that differences exist in the impact on employment if the companies innovate on a product level (what they make) or a process level (how they make it), finding that the positive effect on employment is caused basically by innovations in processes and especially those involving material or energy cost savings. Also, the transformation of businesses does not mainly mean implementing technologies at the end of the production process (for example, incorporating a catalyst into vehicles to reduce emissions), but the generation of “clean” technology to include it in the process itself (for example, changing to the use of renewable energies), it being this that produces job increases (Rennings and Zwick, 2002, 2004). However, Rennings et al. (2004) obtained evidence that eco-innovations in product also have a positive effect on the probability of increasing employment. All these studies seem to converge at the existence of a positive impact by green innovations on the number of workers in companies.
Another group of studies focus their attention on comparing whether companies act of their own volition or, in contrast, limit themselves to complying with standards or laws related with environmental matters or the demands that the market itself imposes. Although not all the data converge, the majority of evidence points towards a positive relationship between eco-innovation and employment, regardless of the reason guiding the introduction of these eco-innovations. Thus the study by Rennings et al. (2004) shows a positive effect on employment when innovations are introduced as an answer to competitor companies, whereas Horbach and Rennings (2013) suggest that savings in materials and energy lead to cost savings, which in turn increases the competitiveness of the companies leading equally to increases in supply and employment. This same study indicates that when the company adopts environmental measurements as a consequence of legal requirements or external regulations, the effect on employment is non-existent. However, Porter and van der Linde (1995) contribute evidence that regulation instruments may constitute a business opportunity and therefore facilitate an increase in employment for those companies that apply them. This happens, for example, when introducing a tax on CO2 emissions, which means that companies take on awareness of their co-responsibility with respect to the environment and incorporate qualified staff who work on continued improvement of the production process to reduce the aforementioned emissions.
3. Employment and eco-innovation in Spain
Investment in green innovation may represent, therefore, an opportunity to tackle the problem of unemployment in Spain. In fact, the data show that companies investing in eco-innovation are the ones that have consistently generated most employment during recent years (graph 2).
This graph presents a comparative evolution of the average level of employees according to whether companies are non-innovators, non-eco-innovators or eco-innovators.
From these data it can be inferred that, even at times of crisis, companies that include environmental concerns as a strategy and innovate in line with this principle show an average employment level that is not only higher but is also growing with respect to non-innovator companies or those that innovate without any concern for the environment. The general result gives cause to consider whether this behaviour occurs across all industries. In this sense, it may be useful to take into account the classification offered by the annual report of the Toxics Release Inventory (TRI), of 2012 and the report of the Environmental Protection Agency (EPA), based on the level of contamination and toxic products that each industry releases into the atmosphere. This classification groups sectors from an environmental viewpoint, differentiating between more polluting and less polluting industries, as shown in the following table.
This table enables a more in-depth description of what is happening in Spanish economic activity, distinguishing between sectors considered less polluting and those considered more polluting. In addition to producing a high level of contamination and toxic products, the more polluting sectors are characterised by having a smaller size, whether measured by sales or by employment. They are usually sectors whose companies, with exceptions, devote less effort to R&D and, therefore, are less intensive in high technology. Furthermore, they often participate much less in public support programmes (local, national or supranational). Companies in industries that are more aggressive towards the environment have a greater impact, which means they are subject to greater public scrutiny and to greater and stricter environmental regulations than other companies.
To obtain indicators of the effect of eco-innovation on employment, a definition of eco-innovation similar to that proposed by the European Union has been used. A company is defined as eco-innovative according to its objectives in innovation terms. Among these objectives, there are four prominently related specifically with the environment: 1) use of fewer materials per unit produced; 2) use of less energy per unit produced; 3) lesser environmental impact; 4) compliance with requirements of environmental standards, health and safety. The four objectives are measured in the Technological Innovation Panel survey (PITEC) with a degree of importance from 1 (non-important) to 4 (very important) and can be analysed in relation with the activity sector and the size of the companies.
Graph 3 shows the objectives of companies related with external motivations such as compliance with environmental standards or achieving a lesser environmental impact. This behaviour is applicable to large, medium and small-sized companies alike, although in a more pronounced way in the first of these. Appearing as the main external motivation is compliance with regulatory pressures, more than acting on the own production process, even when the latter would imply an even greener and cleaner activity, by using less energy and materials. In short, investments in eco-innovation are devoted mainly to complying with environmental standards, but not to directly transforming companies towards using clean technologies through important changes in the production process (for example, favouring lesser use of polluting energies and materials).
Moreover, analysis of the data (graph 4) shows that companies that are in the more polluting sectors are more concerned about the environment than those that belong to cleaner industries, which has a certain logic to it. In the more polluting industries, environmental impact and compliance with the regulations are the most important objectives, but without overlooking the introduction of measures that make their production process cleaner (energy savings and use of fewer materials). Despite the above, it is clear that the main objective of all industries is complying with the regulations.
We can deduce from these data that companies that belong to more polluting industries feel a greater need to differentiate themselves from one another than companies in industries considered less polluting. The introduction of green technologies by these companies causes them to perceive themselves as more sustainable. In contrast, the companies in clean industries enjoy a better image due to their lesser environmental impact. For this reason, society responds in a more positive and receptive way when green innovations are introduced by higher polluting companies, which, in turn, causes an increase in their competitive advantage in the market.
A more comprehensive way of tackling these questions is to include, in a single analysis, all the variables considered (presence of eco-innovations; company’s environmental impact; pursuit of eco-innovative objectives whether voluntary or obliged by the regulations in force) and to observe which of them really predict the increase in the level of employment in innovative companies.
After performing this type of analysis (regression analysis) with data from the PITEC survey, the conclusion is that the presence of eco-innovations is associated with increases in employment level, and that this apparent effect on employment is multiplied in those companies in sectors considered as more polluting (Kunapatarawong and Martínez-Ros, 2016). Moreover, the voluntary pursuit of eco-innovative objectives (reducing consumption of energy and materials) is a predictor of increases in the number of workers, whereas when these objectives are proposed solely to comply with the established legislation, the benefits in terms of employment do not appear. Finally, all these relations between variables do not appear in those companies that, simply, do not innovate.
The impact of human activities on a local and a global scale alike has converted concern for the environment and its conservation into a public priority. It is for this reason that a study that links environmentally-friendly business strategies and results in economic terms is of interest for society as a whole.
Businesses incorporate this concern with the environment through innovations. The introduction of environmental innovations responds both to external (legislation) and internal (economic motivations) factors alike. The results of our study present a positive association between growth in employment and companies with eco-innovative motivations, which suggests that companies that introduce environmental innovation into their corporate strategy generate more employment than non-innovative companies or those with a weaker environmental orientation. Furthermore, the positive effect on employment is greater in industries considered to be more polluting.
These results offer elements worthy of consideration for decision-making in business and public policy alike. Thus, commitment to and investment in innovation, and in eco-innovation in particular, seem to generate yields not only in the environment and the public image of companies, but also in their capacity to generate employment. This makes it advisable for public administrations to consider regulatory frameworks that, for numerous reasons (including that of favouring employment), promote eco-innovation.
In any event, this study is simply a first, limited and partial approach to the question. It is necessary to consider broader and more rigorous studies to enable the extraction of solid conclusions that can form the basis of an informed and efficient decision-making process.
Dangelico, R.M., and D. Pujari (2010): «Mainstreaming green product innovation: why and how companies integrate environmental sustainability», Journal of Business Ethics, 95.
Eco-Innovation Observatory: EU Eco-Innovation Index 2016. Technical Note.
Environmental Protection Agency (EPA) (2012): Toxics Release Inventory (TRI) Program.
European Commission: Eco-innovation scoreboard 2017.
Horbach, J., and K. Rennings (2013): «Environmental innovation and employment dynamics in different technology fields. An analysis based on the German Community Innovation Survey 2009», Journal of Cleaner Production, 57.
Kunapatarawong, R., y E. Martínez-Ros (2016): «Towards green growth: how does green innovation affect employment?», Research Policy, 45(6).
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Rennings, K., A. Ziegler and T. Zwick (2004): «The effect of environmental innovations on employment changes: an econometric analysis», Business Strategy and the Environment, 13.
Rennings, K., and T. Zwick (2002): «Employment impact of cleaner production on the firm level: empirical evidence from a survey in five European countries», International Journal of Innovation Management, 6.
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