Banking on Sustainable Innovation: A Comparative Analysis of Institutional and Regulatory Frameworks for  <scp>SME</scp> Finance in the <scp>EU</scp> and African Union

ABSTRACT This paper examines how legal and institutional frameworks influence bank financing for sustainable innovation among SMEs in the European Union (EU) and African Union (AU). Using institutional theory, it analyzes how coercive, normative, and mimetic pressures interact across international, regional, and domestic levels to shape green lending practices. Drawing on a systematic review of legal and financial literature from 2000 to 2024, the study highlights how the coherence and enforceability of regulations directly affect the availability of sustainability‐linked finance. Through a comparative analysis of the EU and AU, it demonstrates that institutional structures are not merely background conditions but active forces enabling or constraining SME contributions to sustainable development. The findings offer new insights into the critical role of regulatory alignment and institutional maturity in expanding access to green finance, with practical implications for policymakers, financial regulators, and SME managers seeking to promote inclusive and climate‐resilient innovation.