Environmental management control systems and environmental innovation: Unintended consequences of the EU non-financial reporting directive

• Published in: Management accounting research 2024-12, Vol.65, p.100903, Article 100903
• Main Authors: Antonini, Carla, Gomez-Conde, Jacobo
• Format: Article
• Language: English
• Subjects: Directive 2014/95/EU; Environmental innovation; Environmental management control systems; Non-financial reporting
• ISSN: 1044-5005
• DOI: 10.1016/j.mar.2024.100903

We examine the effect of regulatory-driven environmental management control systems (EMCS) on environmental innovation by exploiting the non-financial reporting Directive 2014/95/EU as a quasi-natural experiment. One explicit aim of this directive is to improve the measuring, monitoring, and managing of undertakings’ performance and their impact on society. A regulated context may compel managers to prioritize external regulatory requirements over their specific organizational contingencies. This shift could lead to a decrease in flexibility, which is needed to effectively accelerate environmental innovation, arguably one of the corporate flagships for enhancing environmental performance. We perform a difference-in-differences design using the EU directive as a plausible exogenous shock to EMCS and environmental innovation. Our results suggest that: (i) the directive under study increases the adoption of EMCS, (ii) non-regulated EMCS foster environmental innovation and, even more importantly, (iii) regulatory-driven EMCS have a short-term (temporary) lessening effect on environmental innovation. In further analysis we find that this lessening effect reverses from t+1 onwards, once internal frictions are overcome, with the effect being positive in the long run.