When Investment Undermines Sustainability: The Moderating Role of CAPEX in the ESG–Environmental Innovation Relationship

Abstract

Environmental innovation is increasingly important as firms face growing pressure to translate sustainability commitments into tangible environmental outcomes. This study examines the effects of Environmental, Social, and Governance (ESG) performance and the Environmental Pillar on environmental innovation and investigates whether Capital Expenditure (CAPEX) moderates the relationship between ESG performance and environmental innovation among publicly listed firms in Indonesia, Malaysia, and Singapore. Using secondary panel data comprising 250 firm-year observations from 2020 to 2024, this study employs random effects panel regression. The results indicate that ESG performance and the Environmental Pillar have positive and statistically significant effects on environmental innovation. However, CAPEX does not exhibit a statistically significant direct effect in the moderation models, and the interaction between ESG and CAPEX is not statistically significant. Significant cross-country differences in environmental innovation are also observed. These findings highlight the importance of ESG and environmental performance in promoting environmental innovation, while providing no evidence that CAPEX moderates this relationship.