Mapping Patents to the SDGs: The Relationship Between Sustainable Innovation and Financial Performance Under Varying Digitalization Strategy

This study investigates the relationship between sustainable innovation and financial performance among listed industrial firms, with digitalization strategy examined as a moderating factor. Sustainable innovation is measured through machine learning-based text mining on USPTO patent documents, identifying patents aligned with the 17 United Nations Sustainable Development Goals (SDGs). A Latent Dirichlet Allocation (LDA) model, an unsupervised machine learning technique, is applied to extract latent topics from patent abstracts and map them to the 169 SDG targets, enabling firm-level assessment of sustainability-related innovation. Drawing on a panel dataset, we find that stronger alignment between patent activity and the SDGs is positively associated with financial performance. Digitalization strategy is assessed through the frequency of digital-related keywords in firms’ 10-K reports. Contrary to theoretical expectations, the positive association between sustainable innovation and performance becomes significantly weaker at higher levels of digitalization strategy. These findings highlight the importance of sustainable innovation and a trade-off between digital advancement and sustainability-driven innovation returns. The study contributes to the innovation and sustainability literature and offers practical implications for firms seeking to align innovation strategy with sustainability and digital transformation goals.