Chapter 3: Impact of Eco-Innovation on Firm Performance: Evidence From Sri Lanka

This study explores the impact of eco-innovation on firm performance within Sri Lanka's consumer staples sector. With growing environmental challenges and regulatory pressures, eco-innovation – spanning product, process, and organizational innovations – has become critical for integrating sustainability into business practices. This research fills a gap in the literature by examining eco-innovation's effects on developing economies.

Primary data were gathered from 45 publicly listed companies in Sri Lanka using structured questionnaires. Partial least squares structural equation modelling (PLS-SEM) was employed to analyse the data and evaluate the relationships between eco-innovation types and firm performance.

The analysis reveals that both product and organizational eco-innovations (POEI) significantly enhance environmental and financial performance, aiding firms in meeting regulatory requirements and achieving competitive advantages. In contrast, process eco-innovation does not show a significant impact on either environmental or financial performance. This indicates that the type of eco-innovation adopted is crucial for determining firm outcomes.

The study supports the hypotheses that product and organizational eco-innovations positively affect (H1) and financial (H2) performance. However, the anticipated positive effects of process eco-innovation on environmental (H3) and financial performance (H4) were not supported. These findings suggest that managers and policymakers should prioritize POEIs to drive both sustainability and profitability. Additionally, further research is needed to explore the barriers to effective process eco-innovation in developing economies.