Sustainable Business Models and Environmental Innovation Capacity: The Moderating Role of Board Effectiveness

ABSTRACT Sustainable Business Models (SBMs) reflect the degree to which sustainability principles are embedded across firms' business model architectures. However, the mere adoption of these models does not guarantee improvements in environmental innovation capacity due to internal organizational inertia. Drawing on Upper Echelons Theory, this study examines whether board effectiveness provides the governance configuration that mitigates managerial myopia and mobilizes SBMs toward environmental innovation capacity. Using a European sample (2018–2022) and a two‐step system GMM estimator, the findings indicate that a deeper structural integration of SBM is systematically associated with greater environmental innovation capacity. Significantly, this relationship is stronger under higher levels of board effectiveness, indicating a conditional association, captured through independence, gender diversity, and activity. The results suggest that active board oversight is essential to authorize the resource commitments required for green technologies, a conditioning role that is statistically significant primarily within environmentally sensitive industries where the tension between legitimacy and profitability is most acute.