Does Sustainable‐Oriented Innovation Mediate the Impact of CSR and Green Creativity on Organizational Performance? Empirical Evidence From SMEs

Abstract

This study aims to examine the mediating role of sustainable‐oriented innovation (SOI) in the relationship between knowledge management practices (KMP), corporate social responsibility (CSR), organizational green creativity (OGC), and government financial incentives (GFI) with the financial and environmental performance of SMEs in Pakistan. Using a quantitative approach, data were collected through a self‐administered survey distributed to SME owners and top managers. Partial least square SEM (PLS‐SEM) employed to test the relationship between hypotheses. The findings reveal that CSR, KMP, and OGC significantly influence SMEs' performance, while GFI primarily affects environmental outcomes, with limited direct financial impact. Notably, the findings recognized SOI as a robust mediator, translating internal resources and external incentives into measurable sustainability outcomes. The results validate the Resource‐Based View (RBV) by highlighting the importance of intangible assets and dynamic capabilities in sustaining competitiveness, while also reinforcing Stakeholder Theory by acknowledging the role of external institutional pressures. The study offers novel insights into the integrated role of SOI in driving dual performance outcomes and contributes to the limited empirical literature in emerging markets. Practically, it provides SME managers and policymakers with actionable directions for leveraging innovation to align financial objectives with environmental sustainability. The study is limited by its cross‐sectional design, geographic focus on Pakistan, and reliance on self‐reported data, which should be considered when generalizing the findings.