Translartion. Region: Russians Fedetion –
Source: State University Higher School of Economics – State University Higher School of Economics –
Economists from HSE and RUDN University have analyzed the problems associated with the digital transformation of companies. The introduction of digital solutions into the work of companies reduces the number of patents in the field of green technologies by 4% and creates additional financial difficulties. However, if a company pays attention to sustainable development and increases its environmental, social and governance (ESG) rating, the negative effects are reduced. Moreover, with a high ESG rating, digitalization can even increase the number of patents by 2%. Articlepublishedin the leading international journal Sustainability.
Digital transformation gives businesses new tools to improve efficiency and competitiveness. Companies use new technologies to collect data, work with customers, and analyze. However, this is costly and increases energy consumption, which diverts resources from environmental initiatives. As a result, companies are faced with ambiguous manifestations of the “double transformation” effect and a necessary choice: to invest in digitalization or to develop green technologies. This problem is especially acute among Chinese companies. China, one of the largest energy consumers, faces serious environmental problems. Therefore, companies have to combine the goals of digital modernization and sustainable development.
The economies of Russia and China are similar, and the experience and strategies used by Chinese companies can be applied to Russian practice. Employees Schools of Finance Faculty of Economic Sciences, National Research University Higher School of Economics Irina Ivashkovskaya and Wu Yanfei with colleagues from Department of Applied Economics HSE and RUDN University studied how Chinese business is responding to this challenge. They analyzed data from 1,443 companies listed on the Shanghai Stock Exchange for the period from 2013 to 2022.
For each company, the level of digitalization, sustainability indicators, financial constraints and their impact on green innovation of the firms were determined. To determine the level of digital transformation, the researchers analyzed the frequency of repetition of more than 70 keywords-markers related to digital innovation in the companies’ annual reports. Then, the relationship between two transformation processes – the level of digitalization and innovation in technologies, expressed by the number of patents in the field of green technologies – was examined.
The results showed that increasing the level of digitalization reduces the number of green patents by 4%. This is due to competition for financial resources between digital and environmental projects. Financial constraints also increase: it is more difficult for firms to attract investment. However, increasing the ESG rating weakened this effect, increasing the number of patents by 2-3% on average. Companies with a high ESG profile were better able to cope with challenges related to financing and internal resource allocation.
To obtain a more visual result, the authors also divided the companies into two groups: with a high and low degree of digital transformation. If the business was not engaged in sustainable development and its ESG rating was low, an increase in investment in digitalization reduced the number of patents on green innovations by 12%. However, if the company’s rating was high, this transition, on the contrary, increased investment in green technologies by 6%. The study shows that the dependencies between digital and ESG transformation work differently in companies with state participation and in private ones. In both groups, digitalization creates the effect of financial constraints. However, in companies with state ownership, the mitigating effect of the ESG profile on the results of green innovation does not work.
The authors note that companies should strategically balance internal resources and not sacrifice other areas for the sake of accelerating digitalization. And regular disclosure of ESG indicators will increase transparency and attract additional funding.
“Despite the fact that the study was conducted on data from Chinese companies, its results are also relevant for Russia. Our country has a similar type of economy, among large public companies resource and energy-consuming firms dominate, a significant number of companies are partially owned by the state,” commented Irina Ivashkovskaya, head of the School of Finance of the Faculty of Economic Sciences at the National Research University Higher School of Economics.
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