Diversity as a Catalyst for Sustainability Excellence: Unlocking the Carbon Agenda of Non‐Financial Performance Through Inclusive Governance and Green Innovation Framework

ABSTRACT This study examines whether carbon strategy enhances corporate sustainability performance and whether this relationship depends on green innovation and governance conditions. Specifically, it investigates the mediating role of green innovation and the moderating roles of institutional ownership and gender‐inclusive governance in shaping firms' ESG performance. Using panel data from publicly listed firms in the ASEAN‐5 over the 2017–2024 period, the study employs the two‐step System GMM estimator to address endogeneity and unobserved firm heterogeneity. The results indicate that carbon strategy is positively associated with corporate sustainability performance. Green innovation serves as an important mediating mechanism, suggesting that environmental commitments become more effective when supported by cleaner technologies, sustainable products, and operational improvements. Institutional ownership is also positively associated with ESG performance, indicating that active monitoring and a long‐term investment orientation strengthen firms' sustainability commitments. Furthermore, gender‐inclusive governance positively moderates the relationship between carbon strategy and corporate sustainability performance, implying that more diverse leadership structures enhance the effectiveness of environmental strategies. Overall, these findings suggest that firms improve sustainability performance by integrating carbon‐oriented strategies with innovation capabilities and supportive governance structures. This study contributes to the literature by providing empirical evidence that environmental strategy, ownership structure, and board gender diversity jointly shape corporate sustainability performance in the ASEAN‐5 context.