Do ESG Strategies Drive Green Innovation in Emerging Economies?

ABSTRACT This study examines how environmental, social, and governance (ESG) strategies influence green innovation in small and medium‐sized enterprises (SMEs) in emerging economies. Grounded in the resource‐based view and stakeholder theory, we argue that ESG practices enhance green innovation and that this relationship is moderated by a firm's innovation orientation. Using data from 317 Romanian SMEs analyzed using partial least‐squares structural equation modeling (PLS‐SEM), we find that all three ESG dimensions positively affect green innovation, with environmental practices being the most influential. Innovation orientation significantly strengthens these effects, particularly in the case of environmental strategies. These findings contribute to ESG and innovation literature by providing practical evidence from a transitional economy and highlighting the complementary role of ESG and innovation orientation. The study suggests that Romanian SMEs—and, by extension, those in similar emerging markets—can boost green innovation by adopting integrated ESG strategies supported by an innovation‐driven culture. Policymakers are encouraged to complement ESG reporting mandates with initiatives that develop SMEs' innovation capabilities and create a more sustainable and competitive business landscape.