The role of internal capabilities and firms' environment for sustainable innovation: evidence for Germany

Over the past decade, sustainable innovation has occupied a top‐ranking position on the agenda of many firms. Sustainable innovation can be broadly defined as an innovation that has to consider environmental and social issues as well as the needs of future generations. Although sustainable innovation provides considerable new opportunities for companies it goes along with an increased complexity. This in turn requires certain organizational routines and capabilities to deal with the upcoming challenges. We explore what the specific driving forces are that increase the degree of sustainable innovation within a firm's innovation activities. We test them empirically for more than 1,100 firms in Germany and find that firms need to invest in internal absorptive capacities and to draw both broadly and deeply from external sources for innovation. In that sense, investments in employee training turn out to be more important than technological R&D expenditures.