Environment Innovation and ESG Performance in EU Firms: Exploring the Impact of Environmental Innovation on Sustainability Outcomes

ABSTRACT This study examines the influence of environmental innovation on key sustainability outcomes, namely ESG performance, workforce satisfaction, and SDG 9 adoption, among firms operating in the European Union. Using a panel of 5155 firm‐year observations across 952 companies from 2010 to 2024, the analysis draws on Refinitiv data and applies firm‐fixed effects regressions and dynamic system‐GMM estimation to address endogeneity and unobserved heterogeneity. The results indicate that environmental innovation has a consistently positive effect on ESG ratings ( β ≈ 0.13, p < 0.001), employee satisfaction, and infrastructure‐related SDG engagement. Environmental management training further amplifies these benefits, particularly when programs are tailored to eco‐innovation processes. However, generic training may dilute the innovation–ESG link. The originality of this study lies in offering a unified framework that simultaneously evaluates environmental, social, and infrastructure outcomes; introduces environmental management training as a critical boundary condition; and situates the analysis in the EU context, which features stringent regulatory and governance frameworks. These findings underscore the importance of aligning green innovation strategies with customized capability‐building efforts and governance mechanisms, including board diversity and performance incentives. The study contributes to stakeholder theory, dynamic capabilities theory, and the resource‐based view (RBV) by demonstrating how eco‐innovation creates long‐term stakeholder value, enhances adaptive capacity, and strengthens intangible assets. Practical recommendations are advanced for managers, policymakers, and investors on how to design targeted training, allocate innovation capital, and align governance incentives to achieve superior sustainability outcomes.