In November 2010, specialty chemicals producer Cabot Corporation faced formal EPA enforcement actions for failing to control harmful nitrogen dioxide emissions. The stakes were high – potential licence withdrawals, escalating penalties, and substantial litigation risk threatened the company's operations.

Cabot's response was revealing. Within months, the company filed its first pollution abatement patent in six years – a cutting-edge nitrogen oxide reduction method in November 2011, followed by another environmental preservation patent in July 2012. These state-of-the-art technologies would later be widely cited by other firms developing clean innovations.

The timing exposed an uncomfortable truth. Cabot clearly possessed advanced pollution control capabilities, but had kept them as trade secrets for over half a decade. Only regulatory pressure forced disclosure. This pattern – where companies hide their most valuable environmental technologies until external pressure compels transparency – represents a fundamental challenge in addressing climate change.

The Cabot example illustrates a troubling paradox: while society needs rapid diffusion of clean technologies, the companies developing these solutions have strong incentives to keep them hidden. This breakdown in the innovation system, originally designed to balance private rewards with public benefits through patent disclosure, directly impacts our collective ability to reduce emissions and protect public health.

The hidden value of environmental innovation disclosure

Research from Australian and US universities exposes how this pattern of selective disclosure creates a significant gap between private corporate gains and broader societal benefits. The Under-Disclosure of Environmental Innovation, co-authored by Associate Professors Elvira Sojli and Wing Wah Tham from the School of Banking and Finance at UNSW Business School, Dr Leo Liu from the University of Technology Sydney, and Dr Cara Vansteenkiste from the University of Sydney, employed a novel instrumental variable approach.

Their methodology involved analysing facility-level EPA enforcement data alongside patent filings, controlling for industry effects and historical emissions. The research tracked how companies responded to regulatory pressure through accelerated patent disclosures and examined the subsequent diffusion of knowledge across industries.

The study examined over 41,000 clean technology patents filed by publicly listed US companies between 1988 and 2020, uncovering what the researchers describe as “a fundamental misalignment in disclosure incentives largely overlooked by existing policy frameworks”.

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“This work started as a project of our tree-hugging love for the beautiful world (city) we live in,” A/Prof. Sojli explained. “We wanted to understand how innovation can help in our sustainability quest. There are two options that have been suggested: produce (and consume) less or innovate our way into more sustainable methods of production and environmental care.”

The former can have terrible economic and equality consequences, according to A/Prof. Sojli, who noted that the latter has had a very limited impact in lowering emissions. “This was quite puzzling. We set out to understand why clean innovation appears to have not matched the expectations on lowering emissions and improving environmental outcomes,” she said.

The research found that there was a “significant wedge” between the effects of technology and product market spillovers, indicating that the social returns to clean innovation disclosure often exceed private returns by an “order of magnitude”. When companies disclose their clean technologies through patents, the social returns – measured by increased market valuations of other firms using similar technologies – exceed private returns dramatically. Specifically, the research found that a 10% increase in aggregate clean knowledge capital from disclosure by technology peers is associated with an average 2.36% increase in other firms’ market value.

Corporate incentives drive strategic non-disclosure

The research reveals concerning patterns in corporate secrecy. “About 55% of firms that conduct R&D do not file for patents, indicating a high degree of trade secrets,” the authors note. This strategic non-disclosure becomes particularly pronounced with environmental technologies, where companies weigh competitive advantages against regulatory risks.

“This strategic non-disclosure impedes knowledge spillovers, reinforcing the very market failure that justifies government intervention in innovation,” the researchers explain. The study found that a 10% increase in aggregate clean knowledge capital by product market rivals is associated with an average 0.13% decrease in the market value of other firms, demonstrating why companies rationally choose secrecy despite the enormous social costs.

Furthermore, the study said that firms subjected to a shock in environmental regulatory risk exposure have increased incentives to accelerate and disclose their clean innovation to reduce shareholder and stakeholder concerns about their emission abatement capabilities. The data supports this hypothesis, in that a facility’s first EPA action is associated with 1.10 additional clean patent filings by the facility’s parent firm.

Strategic signalling under regulatory scrutiny

Companies facing EPA enforcement actions undergo a dramatic transformation in their disclosure behaviour. “We find that firms facing EPA actions publish their clean patent applications almost three months earlier than required by the USPTO,” the researchers affirmed. This acceleration demonstrates how regulatory pressure converts disclosure from competitive liability into a strategic necessity.

The benefits of disclosure under regulatory scrutiny are substantial. “Firms subject to high priority-violator status with at least one clean patent experience a 33% reduction in HPV duration compared to those that do not file clean patents. Given that the mean high-priority-violator duration is 600 days, this represents a 200-day reduction in high-priority-violator status,” the study reveals. Companies also strategically communicate these innovations: firms are 0.7% more likely to include clean technology references in the year of the patent filing.

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The environmental dividend of knowledge sharing

Perhaps most significantly, the research documented tangible environmental benefits from clean technology disclosure. When companies learned from others' clean innovations through patent citations, their facilities reduced emissions by 3.9 to 5.3 per cent over the following five years.

This contrasts starkly with traditional innovation spillovers, which typically increase emissions by up to 6.4 per cent, as companies boost production through new production. Sharing knowledge about clean technology actually reduces pollution rather than increasing it. The environmental impact extends beyond individual firms and the environment around that. We estimate that doubling clean innovation disclosure could prevent substantial infant deaths and save millions in healthcare costs from reduced air pollution.

Implications for business strategy and policy

The research conclusions are unequivocal about the need for policy intervention. “Our findings suggest under-disclosure of clean innovation, with a wedge between the privately disclosed level of clean technology and the socially desirable level, reflecting a misalignment between private incentives and social benefits,” the authors state.

A/Prof. Sojli said the findings highlight a critical policy gap: while environmental tax incentives and subsidies encourage firms to develop clean technologies, the broader social benefits of such innovation may remain untapped if firms lack sufficient incentives to make their advancements publicly available. “Our findings suggest that policymakers should not only incentivise R&D but also develop frameworks that promote the disclosure of clean technologies – with the appropriate intellectual property protections,” she said.

For business leaders, the findings suggest reconsidering intellectual property strategies around environmental technologies. Early disclosure might reduce competitive risks while building regulatory goodwill and stakeholder trust. Companies could leverage clean technology patents as signals of environmental commitment, potentially accessing preferential treatment in future regulations or green financing opportunities.

“While environmental tax incentives and subsidies are widely recognised tools for encouraging clean R&D, broader societal welfare gains from these innovations may remain unrealised without adequate incentives for firms to disclose their technological advances,” the researchers conclude. They emphasise that “it is important for policymakers to design mechanisms that not only encourage R&D investment but also incentivise firms to disclose their innovations resulting from these subsidised R&D investments.”

The path forward requires recognising that environmental innovation’s greatest value often lies not in exclusive control but in widespread adoption. As climate challenges intensify, keeping clean technologies hidden becomes increasingly difficult to justify in light of the mounting social and environmental costs.

Clean technology disclosure FAQ

Q1. What is clean technology disclosure and why does it matter?
Clean technology disclosure refers to companies publicly sharing their environmental innovations, enabling broader adoption that reduces emissions and improves sustainability outcomes.

Q2. Why do companies keep clean innovations secret?
Many firms view clean technologies as competitive assets and prefer trade secrets to patents, limiting wider societal benefits despite regulatory incentives.

Q3. How does EPA enforcement affect corporate innovation behaviour?
EPA actions create pressure for firms to disclose clean patents earlier, signalling compliance and environmental commitment to regulators and investors.

Q4. What are the implications for business leaders?
Firms can strengthen trust and reduce regulatory risk by strategically disclosing environmental technologies under sound intellectual property frameworks.

Q5. What policy solutions can close the disclosure gap?
Policies should not only fund clean R&D but also reward early disclosure to align private incentives with public environmental benefits.