When You Find the Opportunity in Negative Environmental Impacts: A Look at Firms' Responses, Performance and Innovativeness

ABSTRACT As far as we know, recent knowledge on adverse environmental impacts on firms' green behaviour, innovativeness and performance is limited, including scant empirical analysis. Theoretical gaps, particularly in ecological economics and environmental management, can also be seen in this context. We therefore fill these shortcomings of prior research by empirically examining above impacts within the territory of the (1) Southern and (2) Central and Eastern European countries, where such analyses are missing. Based on the CB‐SEM technique, our original approach tests how firms' environmental behaviours, innovativeness, and performances are affected by negative environmental impacts expressed by monetary losses because of (i) extreme weather events and (ii) pollution not generated by the firm. To this end, we analyse more than 6000 firms in 11 European countries. Newly, we confirm that exposure to environmental impacts spurs firms' green behaviours, which can also act as a mediator between these environmental shocks and firms' innovativeness. Moreover, we also confirm the mediating role of green behaviours between exposure to environmental impacts and sales performance within Central and Eastern European countries. To our surprise, we find that firms' innovativeness is positively affected by their exposure to environmental impacts among both analysed territories. Our study opens new frontiers in the research fields of ecological policy, climate change adaptation and firms' eco‐innovation management and suggests several implications for practitioners and researchers.