The Relationship Between Environmental Policy and Business Innovation

Abstract

As the global economy enters an era of sustained environmental concerns, this paper investigates the intricate relationship between environmental policy and business innovation. Accordingly, the objective is to identify the key problems that businesses have to confront regarding environmental policies and investigate whether these problems have shaped a trend in business innovation. In conclusion, it is contended that environmental policy has an increasingly strong influence on business innovation activities and that businesses unable to adapt will miss new business opportunities.

The motivation for this research stems from the growing tendency of competition among firms, which is pushing them to engage ever more in environmentally detrimental activities. The subsequent and concomitant burden on the environment is likewise growing with increasing industrial outputs. Such a trend induces societies to regulate industry via a system of environmental policy, seeking to improve the degraded environment and, eventually, to curb the constant increase of irreversible pollution. However, these environmental policies have the unintended side effect of imposing excess burdens on various enterprises not eager to comply with them, because the costs of adherence can be high. In many cases, it is found that the costs of environmental policies could endanger the profitability of companies that constantly breach environmental standards. The costs of rectifying processes, as well as the elicitation of anti-pollution equipment, could compound decreases in productivity with detrimental effects on competitiveness. Moreover, these costly burdens appear to be unevenly distributed among companies, being highly concentrated in certain outdated sectors within given countries.

Keywords environmental policy, business innovation, industrial regulation, sustainability, pollution control, competitiveness, compliance costs, economic impact.