Leader–Member Exchange, Compliance and Sustainability Performance in Carbon‐Market Governance: A Global South Perspective

ABSTRACT This study examines how Leader–Member Exchange quality shapes engagement, compliance, and sustainability performance within Uganda's emerging carbon‐trading market, adopting LMX theory to sustainability governance in a Global South context. A cross‐sectional survey of 206 carbon‐market participants in Uganda measured LMX quality, environmental law awareness, ethical norms, compliance perceptions and sustainability outcomes. Data were analysed using correlation and multiple regression to test three hypotheses linking relational engagement and organisational sustainability performance. Respondents reported high awareness of carbon trading but limited confidence in its environmental impact. Ethical norms and carbon‐emission outcomes significantly predicted engagement, whereas environmental laws alone did not and engagement mediated the relationship between LMX quality and sustainability performance. By decomposing the LMX–fairness relationship, the study reveals a competitive mediation in which a positive engagement pathway offsets a negative direct effect, showing that relational leadership's influence on fairness emerges only when indirect and direct effects are separated rather than read from the total effect. Mediation‐based designs are therefore essential for studying relational leadership governance. Findings underline the need for relational leadership that strengthens trust, communication and procedural clarity to enhance carbon‐market participation. As the design is cross‐sectional, results are correlational patterns and require longitudinal validation in future research. The study advances LMX scholarship by integrating LMX, engagement and sustainability performance within one model and adopting leader–stakeholder exchange beyond conventional dyads into a regulator–firm–community chain, providing Global South evidence where prior research has been largely Western‐focused.