Analysis A new insight into environmental innovation: Does the maturity of environmental management systems matter? Emiko Inoue a, ⁎, Toshi H. Arimura b , Makiko Nakano c a Graduate School of Economics, Kyoto University, Yoshida-honmachi, Sakyo-ku, Kyoto 606-8501, Japan b Faculty of Political Science and Economics, Waseda University, 1-6-1 Nishiwaseda, Shinjuku-ku, Tokyo 169-8050, Japan c Graduate School of Environmental Studies, Nagoya University, Furo-cho, Chikusa-ku, Nagoya, Aichi 464-8601, Japan abstract article info Article history: Received 17 December 2012 Received in revised form 24 May 2013 Accepted 26 July 2013 Available online 5 September 2013 JEL classification: Q55 O32 Keywords: Environmental R&D Voluntary action ISO 14001 Endogeneity Environmental innovation Porter Hypothesis Technological innovation has recently become more essential than ever. To examine the factors that might induce environmental technological innovation, we focus on ISO 14001, a voluntary approach to environmental management, and scrutinise how the proficiency or maturity level of ISO 14001 in facilities influences environment-related research and development (R&D) expenditures that promote environmental technological innovation. We measure the maturity level based on the length of time since a given facility adopted ISO 14001. Using Japanese facility-level data from “Environmental Policy Tools and Firm-Level Management and Practices: An International Survey” (OECD Survey), we estimate two Tobit models by addressing an endogeneity issue in ISO 14001. The estimation results provide empirical evidence that as the ISO 14001 is improved in facilities, those facilities are likely to spend more on environmental R&D. The facility age and market concentration also positively affect environmental R&D. These findings suggest that the maturity level of ISO 14001 is an important factor influencing the investment in environmental R&D. © 2013 Elsevier B.V. All rights reserved. 1. Introduction Technological innovation has recently become increasingly essential to address long-term environmental problems, such as climate change. Many simulations (see the IPCC Fourth Assessment Report (2007) and Stern Review (2006)) show that significant reductions of emissions are inevita- ble, but the percentages of reduction that are discussed in the international arena seem to be impracticable without sacrificing, e.g., further economic growth. In this context, technological innovation, especially environmental innovation, is now expected to become one of the important factors re- quired to change and overcome this difficult situation. What may induce environmental innovation? Environmental regu- lations have been targeted as one of the factors that may encourage environment-related research and development (henceforth R&D) and induce innovation. Numerous previous studies have focused on en- vironmental regulations, which are exogenous to corporations, but have not addressed corporations' voluntary environmental management. When considering the factors influencing environmental innovation in firms, however, it is necessary to examine not only external factors, such as environmental regulations and stakeholder pressure, but also internal factors, such as the firms' characteristics and voluntary ap- proaches toward environmental issues. To examine the mechanism of environmental technological innova- tion, some recent studies, such as Rennings et al. (2006) and Demirel and Kesidou (2011), have focused on voluntary actions, especially on the adoption of environmental management systems (henceforth EMSs). Rennings et al. (2006) investigated the influences of the EU Eco- Management and Audit Scheme (henceforth EMAS), one of the EMSs, on environmental technological innovations and economic performance, and found that the maturity of EMS and learning processes by EMS have a positive impact on environmental processes and product innovations. Demirel and Kesidou (2011) focused on the relationship between ISO 14001 and expenditures on eco-innovations and found that ISO 14001 adoption had a positive influence on the expenditures on both “end-of- pipeline pollution control technologies” and “environmental R&D.” An EMS, such as ISO 14001, is worth the scrutiny because it may lead to innovation. Firms may measure environmental impacts more pre- cisely by adopting ISO 14001, and through this process, firms may find opportunities for further innovation, which may encourage environ- mental R&D investment. To scrutinise this relationship further, this study examines the effect of ISO 14001 on environmental R&D expendi- tures that promote environmental technology innovation. In particular, we focus on the proficiency or maturity level of ISO 14001 in the studied facilities. We measure the maturity based on the length of time since the Ecological Economics 94 (2013) 156–163 ⁎ Corresponding author at: Graduate School of Economics, Kyoto University, Yoshida- honmachi, Sakyo-ku, Kyoto 606-8501, Japan. Tel.: +81 75 753 3465. E-mail address: emiko.inoue.12kw@gmail.com (E. Inoue). 0921-8009/$ – see front matter © 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.ecolecon.2013.07.014 Contents lists available at ScienceDirect Ecological Economics journal homepage: www.elsevier.com/locate/ecolecon