Does Green Innovation Linked between Environmental Governance and Firm Performance? A System of Generalised Method of Moments in Pakistan

Abstract

This study investigates the relationship between environmental governance’s quadruple bottom line dimensions (economic, environmental, social, and governance) and firm performance. It therefore ascertains whether green innovation can mediate the nexus of ecological governance’s quadruple bottom line dimensions and firm performance. Particularly using the generalized method of moments techniques to analyze a comprehensive dataset of 110 non-financial firms listed at the Pakistan Stock Exchange from 2015 to 2022 (880 firm-year observations), our findings first suggest that environmental governance’s dimensions positively affect firm performance. Second, the desired ecological governance can be achieved by adopting comprehensive green innovation. Third, environmental governance has a significant impact on shaping green innovation that affects firm performance. These results are in line with Porter's theory assumptions. The results have substantial implications for stakeholders i.e. researchers, financiers, managers, legislators, and regulators.