Green Energy Patents Boost Company Profitability
For nuclear energy, the increase can be up to 1.6%
An ESG strategy—Environmental, Social, and Corporate Governance—not only helps preserve the environment but can also generate tangible income. Thus, the use of renewable energy sources (RES) and green technologies in the energy sector enhances return on investment and profitability. In contrast, higher CO2 emissions result in lower financial performance. This has been demonstrated in a collaborative study by the HSE Faculty of Economic Sciences and the European University at St. Petersburg. Their findings have been published in Frontiers in Environmental Science.
In recent years, green energy technologies have made significant advancements. Governments and businesses invest hundreds of billions of dollars in developing renewable energy sources (RES), nuclear energy, and electric transportation. In 2020, their share accounted for 40% of all investments in the energy sector, totalling $400 billion. In the European Union, spending on green energy is 3.5 times higher than on traditional energy. Meanwhile, China has reduced investments in the gas and oil sectors by 40% to focus on developing RES. Increasingly, research demonstrates that adopting green technologies can have a positive impact on company profitability.
Elena Makeeva, Associate Professor at the HSE Faculty of Economics, Konstantin Popov, Research Assistant at the HSE Corporate Finance Centre, and Olga Teplova, Research Fellow at the European University at St. Petersburg, have investigated how investments in green energy impact the profitability of energy companies in the BRICS countries. The researchers studied 63 largest firms in the BRICS countries and examined their key financial performance indicators, including return on assets (ROA), return on invested capital (ROIC), and market capitalisation.
CO2 emissions and patents related to three primary types of green energy—renewable energy technologies, combustion technologies with mitigation potential, and nuclear energy technologies—were considered as independent variables. China leads among BRICS member countries in all types of patents, with its share reaching 94% for patents in the field of renewable energy and 89% for patents related to hybrid energy systems.
The model also incorporated the company's revenue and investments, along with the per capita GDP of the company's home country, as controls. The authors constructed several models to establish a connection between investments in green technologies, carbon dioxide emissions, and the return on assets and investments, and market capitalisation of companies.
They have found that higher CO2 emissions significantly reduce company profitability and negatively affect market capitalisation: a 1% increase in carbon dioxide emissions results in nearly a 2% decrease in company profitability. The return on investment decreases even further, by 5% to 7%, along with a decrease in market capitalisation. Conversely, the more 'green energy' patents a company registers, the greater its profitability. The return on assets increases by 0.7% on average, and patents in the field of nuclear energy result in the largest increase of up to 1.6%. The return on investment has been found to increase by 2% to 3%. The researchers note that patents for renewable energy technologies contribute significantly only to ROIC, whereas combustion technologies with mitigation potential and nuclear technologies positively influence all financial performance indicators of companies. The authors also advocate for further advancements in nuclear power technology, since a nuclear power plant is a powerful, stable, and low carbon energy source with a long operational lifespan.
However, it should be noted that investments in green energy typically involve long-term commitments and do not yield immediate financial returns. This study demonstrates that businesses prioritising social and environmental responsibility in their operations can eventually achieve significant profits.
Associate Professor, Faculty of Economics, HSE University
The development of green energy should be a priority for BRICS countries, and investing in infrastructure and improving legislation are crucial factors for an expansion of low-carbon technologies in the electric power industry.
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