Firm-Level Nature Dependence and Green Innovation

Abstract

Firms both influence natural systems and depend on the ecosystem services that support their ongoing production and operations. A higher degree of such dependence may strengthen firms’ motivation to pursue green technologies aimed at conserving resources, limiting pollution, and mitigating nature-related operational exposure. Drawing on a panel of Chinese A-share firms observed during 2010–2023, we examine how firm-level nature dependence relates to corporate green innovation. The empirical evidence indicates that firms with stronger dependence on nature exhibit greater green innovation activity. This finding remains stable when the key variables are measured differently and when an alternative sample period is considered. A policy shock analysis based on China’s Water Resource Tax Reform provides complementary evidence. Further analysis indicates that environmental investment accounts for part of the link between nature dependence and green innovation. Moreover, stronger local environmental regulation amplifies this relationship. Tests across different firm groups, together with formal interaction tests, show a stronger association among state-owned enterprises and firms in heavily polluting industries. The study therefore adds to prior research on corporate reliance on nature by demonstrating that reliance on ecosystem services can stimulate firms to undertake green technological adjustments.