




































AGORA International Journal of Economical Sciences, http://univagora.ro/jour/index.php/aijes 

ISSN 2067-3310, E-ISSN 2067-7669 

Vol. 18, No. 1 (2024), pp. 157-170 

 

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THE IMPACT OF FINANCIAL POLICIES ON PROMOTING THE 

DEVELOPMENT OF GREEN INNOVATION 

 

T. NASIRLI 

 

Turgay Nasirli 

University of Bonn, Germany 

https://orcid.org/0009-0004-0190-4148 , E-mail: nesirli.turqay@gmail.com  

 

Abstract: This research investigates the factors influencing the development of green 

patents and their implications on green innovation. Green financing has the purpose of funding 

environmental initiatives by directing capital from financial institutions to eco-friendly 

projects. Through a review of existing literature and empirical analyses, we identify the 

influence of financial variables and economic policy strategy as key contributors. Preliminary 

findings suggest that these factors significantly impact the prevalence of green patents, 

highlighting the importance of policy and financial decisions in fostering environmentally 

sustainable technological advancements. Our findings reveal a positive correlation between 

environmental R&D expenditure and green innovation. Moreover, venture capital emerges as 

a significant driver of green innovation, facilitating the development of environmentally 

conscious solutions by mitigating financial risks. Additionally, the stringency of environmental 

policies and the presence of green bonds and carbon taxes demonstrate positive associations 

with green innovation. Consequently, the main objectives of this article are to examine the 

impact of financial policies such as R&D, Venture Capital, Debt financing and environmental 

regulations on the development of green patents and innovation as well as investigate the 

relationship between green bonds, carbon taxes and green innovation. Ultimately, this 

research contributes to the ongoing discourse on sustainable development, offering a nuanced 

understanding of the dynamics driving green innovation. 

Keywords: green innovation, financial policies, green patents 

 

1. Introduction 

With the ever-evolving global economy and industry, environmental sustainability has 

become a crucial topic in recent times, particularly in the field of eco-friendly technologies and 

further development related to this sector. This, in turn, raises interest in patents and financial 

factors that affect environmentally friendly technological advancements. There is no 

universally accepted definition of green banking (Alexander, 2016), and it varies widely 

between countries. However, some researchers and organizations have tried to come up with 

their own definitions. Obtaining and using capital for projects that both preserve the 

environment and provide lenders or investors with a reasonable return is known as “green 

finance” (Berensmann & Lindenberg, 2019; Ozili, 2021). 

In order to achieve sustainable development goals, green finance aims to enhance the 

amount of money flowing from financial institutions to economic agents engaged in 

environmental preservation initiatives and activities (Lee & Baral, 2017; Force, 2015). The 

distribution of cash for environmental preservation, the flow of funds to sustainable trade and 

https://orcid.org/0009-0004-0190-4148
mailto:nesirli.turqay@gmail.com


THE IMPACT OF FINANCIAL POLICIES ON PROMOTING THE DEVELOPMENT OF 

GREEN INNOVATION 

 

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investment operations, low-risk financing, and the creation of green investment and financing 

instruments are some of the advantages of green finance (Sachs, Woo, Yoshino, & Taghizadeh-

Hesary, 2019). Green finance has become increasingly common in the banking industry in 

recent decades as a means of safeguarding banks and society from unforeseen economic 

challenges (such as climate change, financial instability, social unrest, and so on) (Ziolo, 

Filipiak, & Bak, 2019). 

Banks have assisted in the policy-making process by implementing green finance 

principles through the provision of green loans, bonds, investments, and other financial 

instruments. Banks play a crucial role in funding the shift to a green economy by facilitating 

private investment, balancing supply and demand, while considering all potential risks and 

assessing projects from an environmental and economic point of view (European Fiscal Board, 

2017). In our paper, we embark on the intersection of green patents and finances - R&D 

investment for environmental objectives, environmental-related venture capital investment, 

financial structure (leverage), and the index of stringency of environmental policies to conduct 

empirical analysis. The central importance of our empirical analysis is the development of 

green patents in OECD countries and factors that affect it. Green patents, alternatively termed 

as eco-patents or environmentally conscious patents, are patents awarded for inventions or 

innovations possessing environmentally advantageous features or supporting sustainability. 

These patents are commonly linked with technologies, procedures, or goods that strive to 

confront environmental issues, advance resource efficiency, diminish pollution, or alleviate the 

consequences of human actions on the environment.  

This study looks into the variables that affect the growth of green patents and how they 

affect green innovation. This article's main goal is to examine the ways in which financial 

regulations and environmental tactics impact the spread and encouragement of green 

innovation. The study's specific objectives are to evaluate how spending on environmental 

R&D and venture money promotes the green innovation in OECD economies. Furthermore, 

analyze the impact of strict environmental regulations on the number of green patents and 

examine how financial structure affects green innovation, with a focus on the debt-to-equity 

ratio. Lastly this article aims to examine the connections between carbon taxes, green bonds, 

and green innovation. 

 

2. Methods 

2.1 Dependent variable 

As a preliminary measure of green innovation, scholars worldwide use the number of 

patents in respective countries and firms according to the classification of patents (Bo Wang, 

Lin, & Lingshan, 2021). We obtained the green patent data of the main economies of the world 

from the OECD database. Main countries of interest are EU members, United States, and Japan, 

which are the main drivers of green patents and green innovation. The patents data and 

indicators are convenient for statistical analysis are developed according to the Science, 

Technology, and Industry directory of OECD. Its coverage includes, but is not limited to, the 

patent grants and applications to European Patent Office (EPO), US Patent and Trademarks 

Office (USPTO), as well as patents filed under and belonging to IP5 Patent families. The patent 

indicators are selected in line with the classes of IPS-International Patent Classification for the 



159 
 

environment-related technology domain. The residence country of the inventor is taken as the 

reference country of patents. In the case of several joint inventors from more than one country, 

fractional counts are applied: If there are 3 inventors, then each country gets 0.33 shares of the 

patent, and so on. The reference date is the priority filing date of the patents, which is the 

worldwide first filing date and therefore nearest to the invention date of the patent. It is worth 

noting that patent grants are disclosed 1.5 years after filing, causing a lag in the processing of 

patent-based indicators, and respectively, our data range covers the period till 2019. 

As the patents show the innovative achievement of countries, they are a key measure 

of the innovation output. They are also useful to quantify the spreading of between 

technological areas, sectors, firms, and level of international collaboration. Since the criteria 

for patent grants are well defined, such as being novel, non-obvious, and useful application, 

and having widely available quantitative data makes patent data a good measure of innovation. 

Yet, not all innovations are patentable and not all patentable innovations are patented because 

there are other regimes to protect intellectual property rights, for example, trademarks, 

copyrights, etc. (Haščič & Migotto, 2015). Although patents are investigated as output 

indicators, they can also be used as input indicators for subsequent innovation. The 

identification and classification of the patents are done mainly through the keywords, codes 

(e.g., CPC, IPC), manual selection, or a combination of several techniques. The data used for 

the purposes of our analysis is collected according to the methodology of OECD (ENV-TECH), 

which is deemed to have more coverage in comparison to two other existing methodologies to 

determine environmental patents based on the code classification, namely Y02/Y04S Tagging 

scheme (EPO), IPC Green Inventory (WIPO) (Favot, Vesnic, Priore, Bincoletto, & Morea, 

2023). The absolute number of green patents per country is normalized by the population size 

of the country and expressed as the number of patents per 1 million population. 

 

2.2 Independent variables 

The first chosen explanatory variable is the amount of environmental-related R&D 

expenditure as a percentage of gross domestic product, quantified as the total of government, 

business enterprise, higher education, and non-profit expenditure in different socio-economic 

objectives. The related data has been obtained from the OECD Science, Technology, and R&D 

statistics database. This measure is based on the objective of “environment,” which includes 

studies related to the development of monitoring technologies, to elimination, measurement, 

and prevention of pollution (Green growth indicators). R&D expenditure has an essential role 

in innovation by providing the necessary financial support by which new services and products 

can be developed or existing ones improved (J. Liu & X. Liu, 2023). As shown in Graph 1, we 

plot the R&D expenditure on environmental factors for selected samples. There exists 

noticeable heterogeneity amongst the sample countries, particularly in Europe. New Zealand 

leads the list with more than 7% of the GDP dedicated to environmental-related Research and 

Development expenses. 

 

 

 

 

 



THE IMPACT OF FINANCIAL POLICIES ON PROMOTING THE DEVELOPMENT OF 

GREEN INNOVATION 

 

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Graph 1. Environmental Research and Development Expenditure 

 
Source: OECD Green growth indicators 

 

The next explanatory variable we chose is the OECD Environmental Policy Stringency Index 

(EPS), an internationally comparable index of how strict are environmental policies of specific 

countries. It defines the extent to which a country’s environmental policies put an implicit and 

explicit price on damaging effects and pollution. The index is built on the stringency of 13 

environmental policy factors predominantly related to weather pollution and climate change 

and ranges from 0 (not stringent) to 6 (very stringent). CO2 Trading schemes, Emission and 

Fuel taxes, emission limits, technology supports are the policy factors to name but a few (Kruse 

et al., 2022). There has been a considerable increase on average in the Environmental Policy 

Index over the past two decades. 

All countries in the sample increased their stringency score between 2000 and 2019. 

Furthermore, France, Denmark, and Germany had the highest stringency index in 2019 

compared to the other countries in the list. In a similar way, some countries have improved 

their score more than others. Observing the change in the absolute values, France and the Czech 

Republic made the largest progress. It is also noteworthy that there exists a large heterogeneity 

across the countries. As a result of our analysis, moving a country from the 25th percentile to 

the 75th increases its green innovation—the number of patents—more than one standard 

deviation at the 1 percent significance level. 

 

Graph 2. Stringency of Environmental Policies in 2000 and 2019 

 
Source: OECD Green growth indicators. 



161 
 

 

The next explanatory variable we took was the debt-equity ratio of the financial and 

non-financial entities in the selected sample countries. It reflects the degree to which debt 

finance is used as a method of financing in the selected countries or how debt-based they are. 

We extracted data from the OECD’s national accounts statistics database. The 

debt-to-equity ratio indicates how much a company is using debt or equity to support 

its operations and it is a measurement of its financial leverage. It is computed by dividing the 

entire debt of financial firms by the total equity liabilities of the same industry, including shares 

of investment funds. The total of the obligation categories that include currencies and deposits, 

debt securities, loans, insurance, pension plans, and other standardized guarantee schemes is 

known as debt. The market value of the issued shares, including investment fund shares, 

represents the equity on the denominator side. All governmental and private organizations 

involved in the financial industry are included in the financial company’s sector (S12). For 

instance, if the ratio is 1.5, the market value of the existing stock is 1.5 less than the amount of 

outstanding debt. European countries have heterogeneity in terms of their financial structure. 

That is, some of them have high levels of mean debt value, such as Luxembourg and Slovakia, 

at more than 14 percent, while others, for example, Hungary, have 4.9 percent, which is the 

lowest rate in our sample. Japan has the highest mean rate of debt capital in the list, with more 

than 18 percent. 

 

Graph 3. Mean Leverage Ratio 

 
Source: World Bank financial structure database 

 

Next, we change our focus to the impact of equity capital, more specifically the venture 

capital, on green innovation. We obtained data again from the OECD database about the 

amount of Venture capital investment in the selected countries for the time period between 

2000-2019 normalized by gross domestic product. It becomes clear that the venture capital 

investment in European countries is considerably low compared to international peers. Mean 

value of VC investment for sample period ranges from 0.005 percent in Slovakia to 0.8 percent 

in Sweden (highest in EU). On the other hand, Israel has 0.72 percent mean value of the VC 

investment, which is the global leader in the world for per capita VC investment. 



THE IMPACT OF FINANCIAL POLICIES ON PROMOTING THE DEVELOPMENT OF 

GREEN INNOVATION 

 

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Graph 4. Mean Venture Capital per GDP 

 

 
Source: OECD Green growth indicators 

 

2.3 Estimation Approach 

We employed a country fixed effects model to estimate the empirical model and for 

hypothesis testing. We also used the Hausman test to justify the use of fixed effects models 

rather than random effects. Equation 1 analyzes the effect of selected explanatory variables 

more precisely, environmental Research and Development investment, environmental policy 

stringency index, financial structure, and venture capital on the green innovation in the country. 

Pit = β0 + β1X1it + β2X2it + β3X3it + β4X4it + γt + ui + εit  (1) 

where:  

• Pit (Patentit) is the number of green patents per 1 million population i at time t.  

• β0 is the constant term (fixed effects)  

• X1it - (RDit) is the environmental related research and development expenditure normalized 

by gross domestic product for country i at time t.  

• X2it - (VCit) is venture capital investment per gross domestic product for country i at time t.  

• X3it - (debtit) represents the financial structure of the country calculated as debt/equity ratio  

• X4it - (stringencyit) is the index expresses the stringency of the environmental related policies  

• ui represents the country-specific fixed effects, which control for all time invariant 

characteristics of each entity.  

• γt represents year-fixed effects (to control for any time-specific factors)  

• εit is the overall error term for country i at time t 

We used panel data of the 35-member countries of OECD for the years between 2000 

and 2019 to evaluate the effects of selected variables on the green technological evaluation. 

This selection criterion is the most appropriate one as an overwhelming share of the world’s 

green innovations (more than 90 percent) are either developed or patented in these countries. 

Moreover, they account collectively for more than 80 percent of the global investment and 

trade. Because of the time lags in the patent filing and application period, we restricted our 



163 
 

sample period until 2019. We presume this time period is also representative in order to 

eliminate the possible exogenous effects of the Covid-2019 pandemic on global investment 

and innovation. The research data is collected for the most part from the OECD green growth 

indicators database and combined together. 

 

2.4 Carbon Tax 

Carbon tax is one of the key mechanisms to provide financial motivation for developing 

environmentally friendly technologies by increasing the demand for such technologies to 

mitigate increased costs caused by the carbon tax (Cantone, Evans, & Reeson, 2023). It sets a 

price directly on the carbon content of the fossil fuels that cause greenhouse gas emissions 

(GHG). It is different from the ETS, which allows the entities with lower carbon emission to 

trade their rights with those causing higher pollution levels. Consequently, ETS can define the 

reduction proportion of the emissions while carbon tax defines the price for it. Burning fossil 

fuels comes with costs, all of which are not necessarily reflected in the monetary price of them. 

This includes social costs, air pollution, contribution to climate change, and CO2 emissions. 

The purpose of putting a price on carbon is to drive its monetary cost to its true cost with 

environmental and social impact. First, it makes fossil fuels more expensive in comparison to 

cleaner alternatives, that is, it encourages the change to greener products.  

Second, it makes the GHG emitters pay for it (Ritchie & Rosado, 2022). The opponents 

of the carbon tax claim that it harms domestic energy-intensive industries in the absence of an 

international agreement on carbon tax because their competitors would not face a similar policy 

in their homeland. Hence, unilateral imposition of carbon tax would place the country at a 

disadvantage and have no effect on the climate (Macaluso et al., 2018).  

According to Ojha and Pohit (2020), in spite of the fact that the carbon tax can 

effectively help to reduce carbon emissions, at the same time it reduces GDP, leading to an 

undesirable tradeoff between GDP and carbon emissions. We showed the map of countries 

with the carbon tax as of 2022 (Graph 5). 

 

Graph 5. Countries with the Carbon Tax 

 
Source: Dolphin & Xiahou (2022) 



THE IMPACT OF FINANCIAL POLICIES ON PROMOTING THE DEVELOPMENT OF 

GREEN INNOVATION 

 

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The degree and existence of carbon tax varies between the industry sectors. For 

instance, while the metallurgy industry might have a higher rate of carbon tax, the road 

transportation may not have at all. Consequently, the countries with the carbon price in any 

sector have been marked, and the graph does not illustrate the economy-wide tax. It should be 

noted that only the taxes on CO2 emission were considered. We divided our sample of 

countries into two groups: First, those with some form of carbon tax and second, those without 

one. The number of green patents per capita are comparatively higher on average in the first 

group at 16 patents than the second one, 21 patents per capita. Although this finding does not 

imply causal relationship between the two variables, the existence of carbon tax pushes firms 

to find environmentally friendly alternatives and hence stimulates green innovation. 

 

Graph 6. Carbon Taxes and Green Patents per Million 2000-2019 

 

 
Source: Dolphin & Xiahour (2022) 

 

2.5 Green Bonds 

An increasingly greater role is played by green bonds in the last decade in the field of 

green financing and reduction of environmental impact. Green bonds are similar to traditional 

bonds in many respects except their proceeds are used for projects that are intended for energy 

efficiency, renewables, sustainability, and meet certain compliance requirements. In the field 

of green finance, green bonds are significant. This holds regarding green bonds just as there 

isn’t a universally accepted definition of green finance. The EU Green Bond Standard, the 

Climate Bonds Standard and Certification, and the Green Bond Principles are only a few of the 

voluntary principles and standards that are in place. These guidelines should guard against 

greenwashing and aid investors as well as green and sustainable bond issuers. The green bond 

market is the one that is expanding the fastest; still, more work is required to bring this market 

segment up to speed with the rest of the bond market both from the supply and demand sides. 

The first ever green bond was issued by the European Investment Bank in 2007 

followed by the World Bank in 2008 November after increasing demand for climate-friendly 

investments, especially from Swedish pension funds. The issuance of USD 1 billion bonds by 



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the International Finance Corporation as the largest green bond in the market at the time of 

issuance in 2013 boosted the expansion of the market (World Bank, 2022). Since then, they 

have gained particular popularity and enjoyed strong growth from USD 36.7 Billion to USD 

487.1 Billion between 2014 and 2022 and peaked in 2021 with USD 582.4 Billion (Statista, 

2022). The market outlook for this market moreover seems positive. To limit global warming 

to 1.5°C in comparison to pre-industrial levels as imposed by the Paris Climate Agreement, 

cumulative energy investment of 53 trillion is needed by 2035 (International Energy Agency, 

2014). In this respect, green bonds can be effective tools to reallocate the investment from high 

carbon to low carbon projects. The bond financing is especially suitable for financing 

renewable energy investments as they generally require high initial investment, are long term, 

and their income stream is linked to inflation. In fact, three-quarters of these infrastructure 

projects consist of debt financing. Hence, governments need to think of relevant tools and 

policies to transform the capital from emission-intensive investments to low carbon and climate 

resilient (LCR) infrastructure. 

Moreover, green bond investments till now seem to make a remarkable impact on the 

green transition. More than USD 10 Billion investment through green bonds by the 

International Finance Corporation between 2010 and 2022 is expected to reduce greenhouse 

gas emissions by 25.6 million metric tons of CO2-equivalent per year and to save 868 Million 

kilowatt hours of energy annually (International Finance Corporation, 2022). A noticeable shift 

to green finance is already to be observed in public and private institutions. The European 

Commission intends to issue 30 percent of the Next Generation EU plan’s financing with green 

bonds for sustainable investment. The green reforms are expected to boost the liquidity of the 

market. If implemented at full scale, all those projects are expected to shrink CO2 emissions 

by 44 Million tonnes equivalent to 1.2 percent of total emissions of the EU in 2022. This 

amount of reduction, for example, corresponds to 80 percent reduction of emissions from the 

building industry in 2022 in the EU (European Commission, 2023). The impact of the 

investment varies naturally depending on the base emission level, location, type of project, and 

so on. Projects relating to renewable energy have approximately one thousand tons of carbon 

emission savings for each USD 1 Million invested, but transportation projects have on average 

600 tons (SP Global). According to Born et al. (2021), although the sustainable debt markets 

in the Euro area are expanding quickly, sustainable financial instruments—such as 

environmental, social, and governance (ESG) funds and green, sustainable, and sustainability-

linked bonds—represent less than 10 percent of their respective markets. Since 2015, the 

amount of assets managed by institutional investors and investment funds with a specific focus 

on sustainability or the green economy has almost doubled. As part of the EU recovery fund, 

Next Generation EU, the European Commission plans to sell up to 250 billion euros in green 

bonds between mid-2021 and 2026, therefore increasing the proportion of green financing in 

the Euro area. Green bonds can contribute to climate objectives mainly through two ways: 

Firstly, their proceeds are invested in the development of cleaner technology, cleaner energy 

production, lower carbon footprint, etc. Second, they influence the behavior of the issuer firms 

positively because of green reporting disclosure and more scrutiny. Hence, they also reduce the 

company’s ability to use proceeds of bonds and moreover compliance and standardization costs 

further questions the motive to use green bonds. 



THE IMPACT OF FINANCIAL POLICIES ON PROMOTING THE DEVELOPMENT OF 

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It is yet claimed that green bonds are still a choice of preference because of their 

signaling effect about firms’ commitment to environmental standards - signaling argument or 

just pretending to do so without having tangible results - greenwashing argument (Flammer, 

2020). Even if there are a lot of projects and green finance is becoming more and more relevant 

numerically, there are still not enough funds allocated to achieve a 1.5°C trajectory. According 

to Delimatsis (2021), a successful strategy towards a relevant sustainable finance sector 

necessitates a combination of bottom-up initiatives like investor demand or the implementation 

of financial institutions’ social responsibility strategies in addition to top-down engagement by 

actors like the European Commission, central banks, or other international organizations. It is 

important to keep in mind that different climate policy measures have an indirect impact on the 

growth of green finance in this context. 

The countries with the green bonds are compared in terms of green innovation with the 

ones where no green bond has been issued over the sample period 2000-2019. We divided them 

into two categories: First, the countries where in a particular year a green bond has been issued. 

Second, the countries where no green bond has been issued at the time. It turns out the first 

category on average has a higher number of green patents per capita, more precisely 28, than 

the second one, 16 patents per 1 million. Yet the relationship of the causality is unclear—

whether the entities who issue green bonds increase their green innovation or the entities who 

already have intention to make green innovation prefer to use the green bonds. Nevertheless, 

green bonds become an increasingly popular tool to finance green innovation globally. 

 

Graph 7. Green Bonds and Patents per 1 Million 2000-2019 

 
Source: International Monetary Fund 

 

3. Results 

Table 1. Regression results with and without FE 

 (1) (2) (3) 

VARIABLES OLS No FE Fixed effects Robust fixed effects 

    

Rd 0.876** 0.822** 0.822** 



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 (0.406) (0.403) (0.288) 

Vc 38.56*** 43.91*** 43.91*** 

 (8.052) (5.593) (8.824) 

Debt 0.583** 0.587*** 0.587*** 

 (0.235) (0.213) (0.150) 

stringency 10.53*** 12.04*** 12.04*** 

 (0.837) (0.995) (0.945) 

Constant -19.52*** -23.91*** -23.91*** 

 (2.866) (3.697) (2.129) 

    

Observations 548 548 548 

R-squared 0.327 0.272 0.272 

Number of years  20 20 

Country FE  YES YES 

Time FE  YES YES 

Source: OECD 

 

Table 1 illustrates the descriptive statistics of the sample. The results of regression 

analysis presented using 3 methods, namely simple regression, fixed effects, and robust fixed-

effects. R&D expenditure appears to be positively correlated with the green innovation in all 

three models with 5 percent statistical significance and 0.82 coefficient value. However, 

Venture Capital has, in a similar fashion, a coefficient of 43.91 at 1 percent significance level 

for all methods. The scope of the coefficient is higher with the inclusion of the fixed effects 

and in comparison, to the other explanatory variables in our model. Next, the capital structure 

of the entities expressed as the debt/equity ratio has a coefficient of 0.6 with a standard error 

of 0.21, indicating a positive correlation between patents and leverage at high confidence level 

(1 percent statistical significance). The last variable in our explanatory variables, namely 

environmental stringency, has a high coefficient value of 12.04 with 1 percent significance 

level across three methods. The consistency of the coefficient for explanatory variables across 

the methods confirms robustness of the model. The interpretation of independent variables is 

one of the most crucial parts of the regression model. Venture capital plays a vital role in the 

development of green patents through several factors. Since innovation is capital-intensive and 

has high up-front costs and risks, the role of venture capital in mitigating the costs of 

conducting experiments, trials, and tests to make an innovation breakthrough in the field of 

green innovation is crucial. Furthermore, venture capitalists are more likely to be risk-taking 

compared to other investors, which positively influences green innovation over the years of 

development. The stringency of the index of environmental policies measures the strictness of 

government over the application of environmental regulations, which in turn can highly 

incentivize green innovation. This index motivates companies and individual researchers to 

develop new solutions and technologies that should also comply with the environmental policy 

of the country, depending on how rigorous the government is on implying the policy. 

Moreover, the recent competition among the countries on reducing carbon footprint and more 

environmentally friendly solutions incentivizes the countries in improving their environmental 

policies. This competition can lead to a surge in green innovation and solutions. 

 

4. Discussion 



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Based on the information provided in the empirical study, we may draw a number of 

conclusions concerning the effects between environmental-related R&D expenditure, leverage 

ratio, venture capital, the stringency index of environmental policies, and green innovation. 

Our analysis reveals a significant positive correlation between environmental R&D 

expenditure and green innovation, confirming the findings of previous studies (J. Liu & X. Liu, 

2023). Increased investment in R&D dedicated to environmental objectives facilitates the 

development of new technologies and solutions aimed at reducing pollution and enhancing 

resource efficiency. This finding aligns with the conclusions of Haščič and Migotto (2015), 

who emphasized the crucial role of R&D in driving innovation. 

The regression results show that venture capital investment has the highest coefficient 

among the explanatory variables, indicating its substantial impact on green innovation. Venture 

capitalists' willingness to absorb high risks and upfront costs is essential for funding 

groundbreaking projects in green technology. This result is consistent with the arguments 

presented by Berensmann and Lindenberg (2019), who highlighted the importance of venture 

capital in financing environmentally conscious solutions.  

Green innovation and the debt-to-equity ratio are positively correlated, suggesting that 

businesses with higher levels of leverage are more likely to make investments in green 

technologies. This finding aligns with the past research findings (Ziolo, Filipiak, & Bak (2019), 

where the role of financial structure in supporting sustainable projects discussed. A high level 

of leverage could give businesses the money they need to launch big environmental projects. 

One of the noticeable conclusions is the increase in the level of EPS index from between 

years 2000-2019. Regression results also show how EPS has a considerable influence on green 

innovation, which can be explained by its effects on creating incentives in the countries, which 

develops motivation for the green patents.  

We also conclude that venture capital has the most considerable effect on the level of 

green innovation in our sample. The fact that venture capital has the ability to absorb risk and 

high upfront costs of projects for developing environmentally friendly technology and 

solutions makes it a suitable way of financing for green patents. Our study demonstrates that 

the existence of green bonds and carbon taxes is positively associated with the number of green 

patents. These financial instruments provide incentives for firms to invest in environmentally 

friendly technologies. This finding is consistent with the conclusions of Sachs et al. (2019), 

who emphasized the role of green bonds and carbon pricing in promoting sustainable 

development. 

Moreover, we have found a positive correlation between the existence of green bonds 

and as well as carbon tax on the average level of patents in the selected countries. Although 

this finding does not imply causality or the direction of it, green patents and carbon incentivize 

entities to increase their amount of green innovation. In conclusion, the results emphasize how 

crucial it is to implement focused financial and regulatory initiatives in order to increase green 

innovation and facilitate the shift to a more environmentally friendly sustainable economy. 

 

 

 

 



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