Corporate environmental responsibility and innovation: empirical evidence from Vietnam

Purpose This study aims to examine the relationship between corporate environmental responsibility (CER) practices and different types of innovation carried out by small- and medium-sized enterprises (SMEs) in Vietnam. Design/methodology/approach The authors employ the bivariate probit model and the two-stage least squares regression model to estimate the effects of CER on process innovation and product innovation of SMEs. Findings The findings show that while CER is not significantly related to product innovation, it has a positive and significant effect on process innovation. Further analysis indicates that CER engagement increases labor productivity and financial performance of SMEs. Practical implications Corporate managers should view implementation of environmental responsibility practices as a strategy to foster process innovation and boost labor productivity and financial performance. For policy makers, government support for firms proactively engaging in CER practices could encourage firms to pursue innovative activities, which are vital to their long-term success as well as to the society's prosperity. Originality/value This study makes several important contributions. First, the authors provide new empirical evidence regarding the different effects of engaging in environmentally friendly practices on firm innovation in an under-examined emerging market setting. Second, the authors enrich our understanding of potential benefits of CER implementation. Third, the findings suggest that firm innovation may play a mediating role in the CER-firm performance association.