Advancing Sustainable Innovation for Sustainable Development Through <scp>ESG</scp> Integration, Sustainability Governance, and Regulatory Stringency

ABSTRACT In pursuit of Agenda 2030, accelerating sustainable innovation is essential for balancing economic growth, environmental stewardship, and social equity. Yet in emerging economies, weak institutions and resource constraints often hinder the translation of sustainability commitments into measurable innovation outcomes. This study examines how ESG integration influences sustainable innovation in Sub‐Saharan Africa, emphasizing the mediating role of sustainability governance and the moderating effect of regulatory stringency. Using panel data from 489 manufacturing firms between 2009 and 2023 and applying dynamic GMM estimators with instrumental variable techniques, the analysis identifies nonlinear relationships: environmental and social strategies exhibit U‐shaped effects on sustainable innovation, whereas governance shows an inverted U‐shaped effect. Practically, the estimated turning points occur at moderate levels of ESG engagement, indicating that environmental and social investments shift from short‐run costs to innovation gains once engagement surpasses an inflection point, while governance delivers its strongest innovation benefits up to a mid‐range level, after which marginal gains taper. Sustainability governance partially mediates these relationships, and regulatory stringency strengthens the ESG–innovation link. Heterogeneity analyses further show that ESG effectiveness varies by region, ownership type, and industry. Overall, the findings challenge linear assumptions in the ESG literature and highlight how strategic ESG transformation, supported by credible institutions, can advance SDG 9 and SDG 12 by fostering sustainable innovation in emerging economies.