New Schulich Study Reveals How Competition and Regulation Drive Green Innovation
TORONTO, ON – Monday, March 10, 2025 – New research from York University’s Schulich School of Business uncovers a compelling link between environmental regulation, market competition, and corporate innovation, revealing that competition fuels green innovation when companies face stringent environmental policies.
The research, titled “Innovating Green: Competition Meets Regulation”, is scheduled for publication in a forthcoming issue of Management Science and is co-authored by Lilian Ng, Scotiabank Chair in International Finance at Schulich, together with her former PhD student at Schulich, Rui Duan, an Assistant Professor of Finance and Business Economics at McMaster’s DeGroote School of Business, and Rui Dai, a senior research director at Wharton Research Data Services who received his PhD in Economics from York University.
The study analyzes corporate behaviour in U.S. counties designated as nonattainment areas – regions subject to stricter environmental regulations due to high pollution levels. The findings reveal that companies operating in highly competitive industries respond to regulatory pressure by investing in clean technology, particularly when they face high relocation costs and have a strong history of innovation. This innovation, in turn, enables firms to differentiate their products, enhance their ESG reputation, and attract corporate customers, leading to increased sales growth, market share, and profitability. However, the study notes that while green innovation often strengthens a company’s operational performance, it does not necessarily translate into higher market valuation.
“Stricter environmental regulations don’t just curb pollution – they act as a catalyst for sustainable innovation, especially in competitive markets,” said Professor Ng. “Our research underscores the importance of well-designed policies that balance compliance costs with technological progress, ultimately benefiting both businesses and society.”
In addition to benefits for companies, the study also highlights broader societal advantages from green innovation, including significant reductions in pollution, as well as providing valuable insights into how competition shapes corporate responses and the role of policy in fostering long-term innovation.
Lilian Ng is available for interviews.