Dual‐Audit Governance and Sustainability Reporting for Environmental Innovation: International Evidence

ABSTRACT This study examines how external sustainability assurance (EA) and internal audit reporting (IA) relate to sustainability reporting (SR) and environmental innovation (GI). Using 10,092 firm‐year observations from 1937 firms across 18 countries over 2010–2024, we employ LASSO‐guided two‐way fixed‐effects models supplemented by fixed‐effects instrumental‐variable estimation, clustered bootstrap path analysis, interaction tests, multiway clustering, and propensity‐score methods. Results show that EA and IA are positively associated with SR, while SR is positively associated with GI. Both contemporaneous indirect associations are also positive and remain stable across alternative control sets and richer fixed‐effects structures. However, the preferred within‐firm interaction is insignificant, instrumental‐variable estimates do not support causal interpretation, and entry into a positive external assurance score predicts stronger reporting but not subsequent innovation. The findings position external assurance and internal audit as additive governance mechanisms linked to reporting within observed firms, rather than evidence of causal mediation, substitution, complementarity, or hierarchical dominance.