From Adversity to Sustainable Innovation: How Competitive Intensity and Environmental Threat Stimulate Co‐Innovation Capability to Enhance Green Product Performance

ABSTRACT Despite burgeoning literature on sustainable innovation, there is limited understanding of how adversarial conditions, such as competitive intensity and environmental threat, shape green product innovation and the underlying mechanisms of this relationship. To address this gap, a caravan passage model is proposed using the strategy tripod perspective. Utilizing second‐generation econometric analysis and data from 2011 to 2024 across firms in the Middle East and North Africa (MENA) regions, we addressed endogeneity and reverse causality and estimated long‐run relationships. We find evidence that while environmental threat does not directly influence green product performance (GPP), it enhances co‐innovation capability, which in turn promotes GPP. On the other hand, competitive intensity, both directly and indirectly, drives GPP. However, the quantile results suggest a non‐linear relationship. Finally, co‐innovation capability is identified as a strategic medium to achieve green product performance. Managers must redirect focus from product innovation to green product performance as a more consequential outcome. Second, policymakers should reframe environmental threats as a catalyst for a green strategy. Finally, strategic collaboration is necessary to overcome adversity, and managers must move beyond a linear view of competition by adopting strategic differentiation and avoiding outspending rivals.