Sustainable Innovation in Small and Medium-Sized Enterprises: Environmental Regulations and Digitalization as Catalyst

Abstract

Conducting research into the multifaceted aspects of environmental regulation and the pivotal role played by digitalization in promoting sustainable innovation represents an invaluable compass guiding the path toward green development. However, it receives little attention in Small and Medium-Sized Enterprises (SMEs). This study examines the impact of environmental regulations on sustainable innovation in SMEs and the moderating role of digitalization. Findings from a panel of 871 SMEs over the period 2012-2020 reveal that command control and public-participative regulations have a U-shaped relationship with green innovation in SMEs, with digital tools accelerating their effects. Market-incentive regulations exhibit an inverted U-shaped effect, with digitalization enhancing the benefits of pursuing green incentives. These insights emphasize the importance of tailored approaches that consider regulatory diversity and the transformative potential of digitalization in promoting green development within SMEs.

Strategic Dimensions of Eco-Innovation Adoption in Manufacturing SMEs in the Context of Mexico City

“…In the political context and eco-innovation emerging as a relevant factor, it is essential that small and medium-sized enterprises (SMEs) focus on developing environmental technologies to promote sustainable development and environmental protection. Since the market alone cannot effectively manage environmental resources, it is necessary for the government to provide support to SMEs through the implementation of laws, policies and fiscal measures that encourage innovation in this specific area [154]. Government incentives, such as public financing, tax incentives, and tax exemptions, play a crucial role in promoting eco-innovation in SMEs [155], [156].…”