DefinePK

Abstract

In response to escalating environmental challenges, corporate sustainability has become a strategic necessity for businesses worldwide. However, despite increasing global attention, the pathways through which corporate governance and green finance contribute to sustainable performance remain underexplored, particularly in emerging economies like Pakistan. This study aims to investigate how corporate governance and green finance influence sustainable performance, considering the mediating roles of corporate social responsibility (CSR) and green innovation. Specifically, the study focuses on the textile sector in Pakistan, an industry facing significant environmental scrutiny and institutional pressures to adopt sustainable practices. Employing institutional theory as the guiding framework, the research examines the combined impact of governance and financial mechanisms within complex sustainability pathways. A quantitative, cross-sectional design was adopted to test the hypothesized relationships using data collected from 261 respondents in textile manufacturing firms in Pakistan. The study utilized purposive sampling, targeting managers with direct involvement in governance, finance, and sustainability initiatives. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) via Smart PLS 4.0, which is well-suited for models with multiple mediation paths and does not require strict data normality assumptions. The results reveal that corporate governance and green finance both positively influence CSR, but only green finance demonstrates a positive association with green innovation. Surprisingly, corporate governance exhibited a significant negative effect on green innovation, suggesting that overly conservative governance structures may suppress innovation efforts in risk-averse settings. Mediation analysis confirmed that CSR significantly mediates the relationships between both corporate governance and sustainable performance, and green finance and sustainable performance. Green innovation mediates the effect of green finance on sustainable performance, though the mediation pathway between corporate governance and sustainable performance through green innovation was negative. These findings underscore the pivotal role of CSR and green innovation in operationalizing governance and financial strategies into tangible sustainability outcomes. The study contributes novel insights to sustainability literature by offering empirical evidence from an emerging market context, with practical implications for corporate managers and policymakers aiming to enhance sustainable performance through governance reforms and targeted green financial strategies.