Unpacking the Governance Innovation Nexus: How Board Characteristics Drive Sustainable Innovation Through Digital Capability in Emerging BRI Economies

ABSTRACT

As global sustainability pressures intensify, firms in emerging economies, particularly those operating within Belt and Road Initiative (BRI) countries, face growing expectations to improve environmental responsibility while navigating complex and volatile institutional contexts. In this context, board‐level corporate governance plays a critical role in shaping firms' commitment to responsible innovation and environmental performance. This study examines how board‐level strategic governance influences sustainable innovation among manufacturing firms in BRI economies, with particular attention to the mediating role of digital innovation capacity and the moderating effect of board ability. Using a panel dataset of 496 firms covering 2013–2023, the study applies dynamic panel and instrumental‐variable estimation techniques to address potential endogeneity and strengthen the robustness of the empirical findings. The results indicate that governance mechanisms associated with inclusiveness and accountability, particularly gender‐diverse boards, performance‐based incentives, and board ownership, positively influence sustainable innovation. In contrast, larger boards and longer director tenures are associated with weaker sustainable innovation outcomes. Digital innovation capacity emerges as an important mediating mechanism through which board‐level governance contributes to sustainable innovation. At the same time, board ability directly enhances sustainable innovation and strengthens the effectiveness of governance mechanisms. By focusing on five MENA BRI economies, the study provides context‐specific evidence on governance and sustainability in emerging and transition economies. The findings contribute to the corporate governance, corporate social responsibility, and environmental management literature and offer practical implications for firms and policymakers seeking governance reforms that support innovation‐driven sustainability transitions.