Multinationals and renewable energies: stimulating innovation through foreign direct investment
Multi-technology companies making direct green investments abroad, such as in renewable energy, increase the innovation capacity of their own headquarters, as well as of their subsidiaries. Access to environmentally friendly reservoirs of knowledge in the global economy gives them an edge over non-globalized firms in sustainability-driven innovation. Based on these findings, Vito Amendolagin, Rasmus Lema, and Roberta Rabellotti argue that de-globalization can be detrimental to the innovation activities of firms that contribute to green transformation around the world.
Multinational enterprises (MNEs) can have both positive and negative effects on global green transformation. Many multinational corporations are known to organize internationally to avoid environmental regulations and to use accumulated corporate power to pressure governments and maintain obsolete technologies, thereby slowing the green transformation. For example, a recent report by InfluenceMap, a think tank, listed three large multinational corporations – Exxon, Chevron and Toyota – as the three most obstructive organizations in the world when it comes to setting and implementing policies. climate change aligned with the Paris agreement.
Some multinationals, especially those with direct interests in the production and consumption of fossil fuels, are slowing down the green transformation. However, others, such as companies with interests in green technologies such as renewable energy, can help speed it up. Given their global reach, they can provide access to more innovative solutions that can help reduce carbon emissions. Access to environmentally friendly reservoirs of knowledge in the global economy gives them an edge over non-globalized firms in sustainability-driven innovation. This is what we find in a recent article devoted to foreign direct investment and innovation in renewable energies.
It is perhaps not so surprising that pure environmental players specializing in renewable energy technologies – such as the Danish Vestas Wind Systems or the Chinese Yingli Energy in the solar photovoltaic sector – are more innovative than companies in the same industries. which do not globalize. After all, it is well known that foreign direct investment tends to stimulate the innovative capacity of companies. But it is interesting to note that the large multi-technology conglomerates with green businesses – such as the German Siemens, the American General Electric or the South Korean Samsung – are subject to a greening effect at the firm level when making foreign direct investment in renewable energy. In other words, foreign direct investment in renewable technologies not only builds innovation capacity in and around the subsidiary, but also contributes to the greening of the knowledge base at the headquarters of multi-technology conglomerates.
We derive this information from a dataset comprising 1,217 green foreign direct investments (GFDI) undertaken worldwide during the period 1997 to 2015. Sourcing information from the Orbis and PATSTAT databases, we let’s first select multinationals that already have some experience in innovative activity in renewable energies. This means that we focus on multinationals holding one or more patents in renewable climate change mitigation technologies, as defined by the classification of the European Patent Office. We then capture their FDI aimed at creating or acquiring subsidiaries for the production or distribution of renewable energy technologies.
This method allows a detailed understanding of the models. First, GFDI has a positive impact on innovation (green investors demand more patents related to renewable energy) and there is an increase in the share of green patents in investors’ patent portfolios in the first five years following the investment. Second, it is important to know what type of GFDI the MNE is engaging in with respect to the so-called “mode of entry”. When it creates a completely new subsidiary, building it from the ground up, the increase in innovation becomes more and more important every year. Companies that make direct green investments abroad in the form of greenfield investments file more green patents (and these patents are cited more) than companies that acquire foreign green innovators. When GFDI takes the form of an acquisition of an existing firm, there are only short-term effects on the innovative capacity of the MNE.
Why are these results important? What’s new? It is already well established that multinational corporations can play an important role in disseminating relevant climate change mitigation technologies, especially with the transfer of knowledge and capacity from lead markets to the rest of the world. However, in the early stages of green transformation, this diffusion was undertaken mainly by pure green actors working in niche environmental fields. The deeper involvement of large multinational conglomerates can facilitate the scaling up of these niches. Our finding that outward direct green investment increases the overall sustainability focus of multi-technology firms is novel. We show that green foreign direct investment increases the green specialization of these firms. Given that the largest and most influential manufacturers in the world are multi-technology in nature, this idea is not trivial and is good news from a green transformation perspective.
If the world’s largest multinationals dedicate their innovative activities to making green technologies more efficient, affordable and accessible, their contribution to the green transformation could be significant. As the knowledge base becomes greener, sustainability-driven technologies are moving to the center of competitive strategy. As such, they can also begin to take the lead in progressive strategic political engagement. In this regard, InfluenceMap 2021 has created an A-List of potential business leaders which includes multi-technology multinationals in our sample such as Philips, Schneider Electric, Siemens.
The outward impact of GFDIs on sustainability-driven innovation has so far been overlooked as a mechanism for supporting green transformation both in the policy arena and in the international business literature.
Our results indicate that governments should encourage and support the internationalization of companies in environmentally friendly fields, as this will contribute to green transformations, supporting the decarbonization of energy systems in the specific field of renewable energies. Multinationals are indeed already key players in the production of innovations in the world: green-type investments, such as those in the wind power of the German Siemens or the American General Electric or in the solar power of the Korean Samsung can help move global technologies in a more sustainable direction. The potential impact on green innovation should also be taken into account in the area of trade-related investment measures (TRIMs) under the World Trade Organization (WTO) and in the implementation of frameworks investment selection that have gained momentum in the world in recent years. years due to growing political concern over security issues and associated self-reliance strategies. De-globalization can be detrimental to the effectiveness of corporate innovation activities that can accelerate green transformation around the world.
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To note: The post office gives the point of view of its authors, not the position USAPP– American Politics and Policy, nor from the London School of Economics.
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About the authors
Vito Amendolagin – University of Foggia
Vito Amendolagine is Assistant Professor of Economics in the Department of Economics at the University of Foggia. His research focuses on international trade and development economics, with particular attention to foreign direct investment and transnational technology transfer. He holds an MA in Economics and Econometrics from the University of Essex, a PhD in Economics from the University of Bari and a PhD in Economics from the University of Glasgow. He has experience working with UNIDO, LSE, Johns Hopkins University and the universities of Aalborg, Bari and Pavia.
Rasmus Lema – University of Johannesburg
Rasmus Lema is Associate Professor at UNU-MERIT, United Nations University and Visiting Professor at the College of Business and Economics, University of Johannesburg. He holds a doctorate in law from the Institute of Development Studies (IDS) at the University of Sussex and conducts research at the intersection between innovation studies and development studies, with a focus on particular on policies and practices of technological learning, innovation and skills building for sustainable industrialization. .
Roberta Rabellotti – University of Pavia
Roberta Rabellotti is Professor of Economics at the Department of Political and Social Sciences at the University of Pavia. His research focuses on innovation in emerging countries, clusters, global value chains and multinationals. Throughout her career, Roberta has participated in and led several research and consultancy projects, providing academic advice to, among others, the European Commission, IDB, OECD; ILO; UNIDO; UN-CEPAL and UNCTAD. More information available at robertarabellotti.it